Can I Line Up the Financing? Financing a fixer can be tricky. Lenders won’t want to give you prime loans on a property that’s in bad shape. But some lenders will give you subprime loans. You’ll have to scout this out. Your best bet will be banks and the few mortgage brokers (if you can fine one) who specialize in fixers.

TIP GET THE MONEY UP FRONT The cardinal rule for financing a fixer is to line up all the money you’ll need in advance. The reason is that once you get started tearing out walls and flooring, it will be far harder to convince any lender to give you a loan. This means you’ll have to calculate pretty closely just how much money it will take to do the entire fix-up.

The Hardest Part Probably the hardest part of buying a fixer is getting the seller to accept a reasonable price. (Refer to our earlier formula for determining how much to pay.) Sellers have heard that property prices have gone up. And they want to participate on the boom. Of course, they don’t want to realistically discount their property because of the poor shape it’s in. All of which is to say, plan on doing lots of negotiation. And plan on making lots of lowball offers, most of which won’t be accepted.

Just be sure that you don’t get discouraged and offer more than you should for a property. Once you make your calculations, don’t redo them upward because a seller won’t budge. Stick with them. Better to lose a deal than to get stuck by paying too much and not being able to fix it up to a market price. Don’t get discouraged. Lots of people find, buy, and successfully fix up properties every day. There’s no good reason you can’t be one of them.

Buying Directly from Builders and Saving Perhaps you are considering the purchase of a new home instead of a resale. Are there different things to watch for? Are there special benefits as well as pitfalls to avoid? While there are similarities, buying a new home is substantially different from buying a resale. It is a different market that requires you to have specialized knowledge.

Will a New Home or a Resale Appreciate Faster? A question frequently asked by buyers is: “Where will I get the greatest appreciation in a new home or in a resale?” (Or in a bad market, which home holds up its value the best?) To put it another way: “If I had a choice between two houses, a brand new one and a resale each worth $200,000 and both in similar neighborhoods, which house would make me the most money or cost me the least money over the next five years?” In the distant past the answer was generally the resale. The existing house had developed neighborhoods, schools, shopping, parks, and so on. It had all the amenities already in place, and for that reason resales tended to appreciate more than new homes . . . and to cost more as well. During the last quarter of the twentieth century, however, the tables turned. Then, in many areas of the country (but not all), the price appreciation on new homes was far and away greater than on resales. Good advice at the time was to simply buy a new home and ride the wave of appreciation up to profits.

New or Resale? Buy a new home IF:  If you don’t want to inherit maintenance and repair problems  If you want to move into a “clean” house  If you don’t mind putting in back yards, fences, and otherwise completing the development of the property Buy a resale IF:  If you want to live in a “proven” neighborhood (established schools, crime rates, and so on)  If you desire a mature area (lots of trees and shrubs)  Want “character” Victorian, New England, Spanish, Plantation, or other style With the depressed real estate market of the early 1990s, buyers discovered that it didn’t matter if a house was new or old, it could go down in value. Only those homes in the very best neighborhoods, new or old, kept their value or appreciated. Today, in the twenty-first century, both new homes and resales are moving ahead rapidly in price. So which to buy?

Many new developments are built in phases. If the initial phase is successful (a good neighborhood), the later phases usually turn out similar. If you can get a later-phase home at an earlier-phase price, you could be headed for a profit-making deal. Real estate is a localized market. That means that you cannot say that something is true at any given time for all parts of the country. While Southern California, for example, or New York may see property values skyrocket, at the same time parts of the Midwest or South may see them stagnate . . . or vice versa.

How Do I Find the Right New Home? If you’re determined to buy a new home, be prepared to spend some time looking. In most areas of the country, the era of the huge tract has given way to smaller, condensed tracts built a phase at a time. To see all of the new homes in your area, you may have to spend time traveling. Many areas have a “buyer’s guide” to new homes a small magazine detailing the houses and their price range and show-ing maps of how to get there. The Sunday real estate section of any major newspaper almost always has ads for new homes.

What Should I Look For in a New Home? Here’s a checklist of items to look for when choosing a brand-new home:

Neighborhood It’s hard with a new home because frequently the neighborhood is likewise new and undeveloped. Here’s a checklist to help you evaluate a neighborhood for a new home.

New-Home Neighborhood Checklist yes no  Are the local schools good? (You can ask to see their scores on standardized tests to judge.)  Are the schools nearby?  Are there day-care facilities nearby?  Is the area relatively crime free? (Check with the police department’s Public Affairs officer, who can usually give you crime statistics down to the block.)  Does the police department seem responsive?  Is there adequate fire protection? (Check with your insurance company for fire ratings in the area.)  Is shopping nearby?  Is there a hospital nearby?  Is the neighborhood “quiet”? (Come back at different times of the day to check.)  Are posted speed limits slow? (You want a 25 mph limit, not 35 or 45.)  Is there a high-traffic street nearby that cars shoot out of?  Is there a park nearby?  Is public transportation available?  Is there adequate off-street parking?  Are the lots “private” enough?  Is the tract landscaped?  Is there danger of future erosion? (If you’re not sure, check with a soils engineer.)

Does the water system provide pure drinking water? (The water company almost always must supply you with the results of water purity testing.)  Are there any special assessments that you’ll have to pay (Street improvement, sewer tax, and so on)?  Are there any nearby hazards or nuisances (Factories, swamps or rivers, oil tanks, hazardous waste facilities, and so on)?  Are the homes connected to a sewer system (septic systems are less desirable)? In addition to the features of the house itself as well as the neighborhood, there is the factor of the new home market. The housing market is volatile, with many ups and downs. Here’s what to look for.

In a slow market (no rapid price appreciation, but no falling prices, either), there are sometimes more new homes than buyers, and builders are anxious to sell them off. The ads for the homes are placed in all papers, there are signs along the major roads directing you to the new tracts, and there are almost always models of all the homes available to see.

NEW HOMES ARE CHEAPER TO OPERATE As a rule, new homes will have newer and more efficient heating and cooling systems, more insulation, better windows (double pane and low-E), tighter weather stripping, and so on. This all translates into lower energy costs. While the salespeople in the office try to get you to make a quick decision, remember that you usually have plenty of time. You can leisurely shop around, going from model to model until you find just the right home for you. Once you find it, you can often negotiate more favorable terms from the builder (reduced price, a buydown on the loan where the builder pays part of your interest for a few years free amenities such as fences, yards, and so forth).

Recession? A real estate recession happens rarely, but it does happen. You’ll know a depressed market if you’re in it. Every Sunday the paper will offer “repos” and “REOs” and “bank-owned properties” for sale or auction. If the ads don’t alert you, there are other signs of a down market:

How to Recognize a Real Estate

Recession  Statistics available from brokers and published in the business section of the local papers indicate that the volume of home sales is dramatically down from the previous year.  The number of houses advertised for sale (both new and resale) in the newspapers is enormous.  The price of homes is declining. This is usually measured by the median price. Instead of going up, statistics may suggest it’s declining.  Government home auctions by the FHA (Federal Housing Administration) or the VA (Veterans Administration) may be held weekly, as evidenced by large ads in local papers.  There’s difficulty getting financing from lenders because of the many houses already in default.

Tracts of new homes are fully built with the houses standing vacant and unsold.

Be wary of buying a new home in a real estate recession. In a down market you can find apparent “steals” on resales as desperate sellers fight to get out. However, how wise is it to buy today when you can buy the same house for less tomorrow?

A hot market can be the most difficult time to buy a home. Hot markets have occurred on both coasts at various times over the past 50 years, the most recent starting around 1998 or 1999, depending on your area of the country. What happens in a hot market is that there are more buyers than there are homes available for sale, both resales and new. (Part of the reason is that prices are perceived to be going up, and speculators enter the market. Also, there may be a shortage of homes in your area of the country something that has occurred, for example, in Southern California and elsewhere.)

TIP FOLLOW INTEREST RATES If you’re concerned about the market, be sure to check interest rates regularly. When they are falling, it’s almost a sure sign that soon, if not already, prices will likely rise. When they are rising, watch out. Real estate does not like higher interest rates, and a slowdown could be imminent. In a hot market, prices go up for both resales and new homes. When you are seeking a new home in a hot market, the odds are set against you. You are competing against other buyers for relatively few homes. Builders don’t need to advertise, since buyers are beating the woods looking for new homes, so it’s hard to locate the tracts. And frequently the prices of the new homes are so high that it’s scary.

The Early Bird Gets the Worm Here’s a story that is perfectly commonplace when the market heats up. I have a friend who wanted to buy a brand-new home in a suburb of San Francisco. This was at a time when the market was almost too hot to touch. However, my friend was determined. Each day after work Jerry would cruise the neighborhood looking for signs of new construction lots being bulldozed, houses being framed, even signs indicating that a builder was going to develop a tract on a certain piece of land. Eventually Jerry located a tract he liked. It was the second phase of a builder’s earlier development. When Jerry found it, the lots were just being bulldozed. No construction had started. There really was no one there to talk to. So Jerry flagged down a bulldozer driver and asked where he could find the construction foreman. From that person he learned who the developer was and called the developer’s office. The developer told him that while she had plans for the houses being constructed, she hadn’t yet finalized plans for their cost. She took his name and promised to call him back as soon as she had calculated how much the houses would sell for. Jerry didn’t take any chances. He called her every week for two months until finally she gave him a price list and indicated that the construction company would begin accepting offers to purchase on June 10, a month hence. Jerry got a copy of the plans (the models weren’t yet built) and went around to the building sites, deciding finally on a particular lot and design he preferred.

The cost was $35,000 more than he thought he could afford; however, he borrowed from his parents in order to be sure he could buy the house. Four days before the builder was going to accept offers, Jerry, complete with cot, sleeping bag, thermos, and ice chest filled with food, set up residence in front of the builder’s office. Mind you, this was four days early. Jerry was the first one there. However, within hours of his arrival, half a dozen other people showed up and camped out behind him. By the next day the line had swollen to over two dozen. Two days before the houses were to go on sale, there were more than 50 people in line. Keep in mind that only 28 houses were going to be sold. To help keep things orderly, Jerry made a list of who was in line in what position and gave it to the developer, who agreed to honor it. Finally the fateful day arrived.

Jerry was the first one in, the first to give his deposit, the first to sign a sales agreement. (There obviously was no haggling on price or terms Jerry accepted whatever the builder dictated.) Then he went home to the first decent night’s sleep in nearly a week. It took six months to build the homes. Finally, after some harrowing troubles with qualifying for the lender (Jerry borrowed extra money from relatives), he got the house and moved in. His house came with no fences, no yard, and very few amenities inside. He paid more than he wanted to, but he was in. Question: Was it a good move for Jerry? Depends when you ask. Three months after Jerry moved in, he was offered a $55,000 profit if he would sell. He laughed and hung on. A year later the housing recession of the 1990s hit California and the value of his home plummeted. The price dropped by $50,000 more than he paid. Jerry hung on and got caught in the housing boom at the turn of the century. Since then his house has gone up more than $150,000 over what he paid for it.

You may have a choice between buying an already built brand new home or one that a builder has yet to put up. There are pros and cons with going each way. With the already-built home, you know what you’re getting and usually can see the neighborhood. But, with the yet-to-be-built home, items can be changed to fit your specific needs. My suggestion is that whenever possible, always buy a home that is already built. I believe that knowing what you’re going to get is more important than being able to customize a plan. Besides, you know for certain that it’s actually going to get built.