With prices for real estate in Big Bear at an all time low, many folks are seriously considering buying a bank owned fixer. On the surface, it seems like a really great idea, and if done correctly, it can be.
However, like most things, it is a little more complex than it appears to be.
There are many issues that can come up and derail or at least cost more than one would expect. The purpose of this blog post is just to bring up a few things one should think about before you take the plunge.
1. Don’t be greedy. Buy low and sell low. This is still very much a buyers market. Even if you get a great price on a fixer, you will still have to sell for a low price. If you are not planning on holding on to the property for at least five years, you really need to make sure you have your numbers right. I have seen some successful flips lately, but only when the investor is realistic about the profit margin and prices the improved property to sell.
2. Don’t underestimate repair costs. If you are not a contractor, repairs can cost quite a bit more than you would think. Everybody always says that they have a Cousin or an Uncle who is a contractor who will fix the house on the cheap. Then when it comes time to get the work done, the Uncle or Cousin is nowhere to be found. Even simple things like carpet or painting can run into the thousands of dollars.
3. Permits & Inspections. If you are planning any sort of major addition or remodeling, don’t forget the costs for permits and inspections. To insure that the house is sellable, permits are a must. You are allowed to sell a house that is lacking permits as long as you disclose it but, an unpermitted addition or remodel will leave some serious misgivings in the mind of a potential buyer.
4. Financing. Last but not least, if you are planning on buying the home using a loan, you need to do your homework. Many lenders won’t do a conventional loan on a home that is in serious disrepair and not habitable. Something as simple as an illegal water heater can keep a loan from funding. Is the stairway missing a railing? That can cause an underwriter to not fund the loan. Most lenders usually aren’t too concerned if a home only needs paint, carpet, landscaping etc, but anything else can be a problem. If you are planning on using an FHA, VA, or any government assistance program, forget about it. They won’t fund a loan if the paint is peeling on the eaves. It is a very difficult proposition to use any of these programs to buy a fixer.
I hope that this has been of some assistance to anybody planning on buying a fixer and then reselling it. Basically, if you are not planning on a long term investment, this may not be the ideal market for you. If you are planning on flipping a house, be very careful. Take the time to work everything out ahead of time. Get some bids from a reputable contractor and work closely with your Realtor to get an honest idea of what price your rehabbed home will likely sell for in this buyers market. If I can be of service, please do not hesitate to contact me at firstname.lastname@example.org .