Finding

Fixer-Uppers A “fixer” is short for “fixer-upper” (also sometimes called a “handyman’s special”). It’s a house (or condo/co-op) that is in less than perfect condition, sometimes far less. Some merely need paint. Others need a complete makeover. Some even require structural repair. Whatever their deficiencies, they are typically sold at a discount. If you’re having trouble finding a home you can afford to buy in the neighborhood you want, then one alternative may be to consider a fixer. Here you can sometimes substitute “sweat equity” for the cash (or credit/income for loan qualifying) that you need to get in.

Why Should I Consider a Fixer? There are three reasons that people want to buy fixers. They are:  Get into an area you’d otherwise not be able to afford  Get into a house you’d otherwise not be able to afford  Make a profit

TIP IT’S NOT SIMPLY COSMETIC My wife and I have a running battle over what constitutes a fixer. She feels that if the paint isn’t new and there are one or two cracked counter tiles, it’s a fixer. I, on the other hand, maintain that the property has to have a big enough problem that no one will pay full price for it obsolete kitchen/bath, broken doors in interior, cracked foundation, and so on. Her complaint is that no one will come down on the price for what she considers a fixer. Mine is that they often won’t come down far enough to make buying the home and fixing it worthwhile.

It’s important to understand at the onset that if you’re going to buy a fixer, even if you get it dirt cheap, it’s going to cost you time, money, and effort to renovate it. It would be a mistake to buy such a property thinking you can simply move in as you would a house that’s already in perfect shape. If you’re the sort that looks at homes and tends to like those that are “ready to go,” then chances are you would not be happy with a fixer. In fact, you’d probably walk away from a perfect “fixer” steal simply because you wouldn’t recognize it.

Recognizing a Fixer As suggested previously, fixers run the gamut of those that simply need cosmetic work to those that are in such bad shape they need to be “scraped” (demolished) and a new house erected from scratch. While most of us would prefer to stay closer to the cosmetic realm, where cleaning, painting, and replacing fixtures is about all we’d be called upon to do, the big discounts come from properties that have more serious problems. For example, at the more serious end of fixers are homes that have broken foundations, that have collapsing roofs, that have been condemned because of fires or ground shifting, that are sliding down hills and on and on. Homes that have problems this serious will obviously come with a strong discount. Indeed, you may be able to pick up the property for just the cost of the land. In some cases, that’s less than half the price for a home in good condition.

Cosmetics versus Renovation in a Fixer You’ve got a cosmetic fixer IF:  Paint will handle most of the problems  New carpeting will do the trick  Landscaping the front will be the finishing touch You’ve got a renovation fixer IF:  You need to put in a new kitchen and/or bath  There are structural problems with the roof, foundation or framing  Major systems (plumbing, heating, electrical) need repair However, fixing such calamitous problems requires ingenuity, money, nerve, and stick-to-itness. Unless you have all four, plus a pretty strong background in renovation, my suggestion is that you simply stay away from these. If it’s your the first time out, you could get burned badly on one of them. Rather, what you probably want is something closer to the cosmetic fixer. You want a home that looks like a mess but can be shaped up with lots of paint, simple fixing, and TLC. Do such fixers exist?

TIP KNOW THINE OWN ABILITIES Perhaps the most important thing when evaluating a fixer is to determine whether you can do the work yourself, or whether it’s beyond you. For this reason, it’s always a good idea to call in experts contractors, engineers, agents people who specialize in fixing the particular problem. In many cases they’ll simply give you a bid. In others you may have to pay them a fee. But either way, very often only they can tell you how the problem can be correctly fixed. And how much that will realistically cost.

Where Can I Find a Fixer? Fixers abound in all communities and in every part of the country. They come about because some people simply never maintain or repair their home. They let it run down until it’s time to sell . . . and then it’s a fixer. Other times it’s a case where you have an older home and/or an older owner. The older the home, the more maintenance and repair. The older the owner, the less likely the person is to do this. In some cases the owners die and their property is then disposed of through probate. You can sometimes get a terrific fixer deal in that way. Other owners who lose their jobs, get a divorce, or otherwise run into circumstances where they can’t keep up the mortgage, lose their property to foreclosure. You can sometimes buy a terrific fixer from a bank or other lender that’s an REO (Real Estate Owned). (For more detailed information on probate sales and REOs, check into Finding Hidden Real Estate Bargains by my favorite author.) And, of course, you can work with agents.

Should I Work With Agents? Agents are always on the lookout for fixers, and if they know that’s what you want, most will look for you. However, don’t expect agents to fall over at your feet if you tell them you specifically want a fixer. Agents know that good fixers seldom come along, and completing a deal on them often takes lots more work than selling a ready-to-go house. Check the MLS® (Multiple Listing Service), which your Realtor® should be able to access. This can take time and careful scouting. However, today the MLS is computerized in almost all areas of the country. You can simply sit down with your agent and use his or her computer’s search engine to hunt for suitable properties.

Tips for Finding Fixers on the MLS Pull the lowest-priced properties in each neighborhood. Check for expressions on the listing such as, “Needs tender loving care,” or “sweat equity opportunity.” Carefully examine the picture. Almost all listings today come with at least one good color image. Does the house look dazzling, as many a fixed-up place will? Or does it look a bit tired? Look especially for tall weeds in the front yard, big cracks in the driveway, and temporary cyclone fences. All indicate a problem house. Check out the “aged” listings. The longer a house has been on the market, the more likely that it has problems. Besides, sellers of homes that have just been listed are unlikely to consider taking price cuts. Usually a seller won’t want to reduce the price until a home has sat unsold for a minimum of 60 days or longer. Ask your agent for help. He or she may well know the area you want to live in. The agent can read the listing, look at the picture, and if they’ve visited the place, give you a quick synopsis of the home’s condition. Check the “expireds.” If you don’t find anything suitable with the current listings, ask to see those listings that have expired. The MLS also carries information on listings that have expired without being sold. This can be a real treasure trove. Listings that have expired are no longer listed for sale. However, often the owners are still willing to sell them. It’s just that they’ve gotten discouraged and have taken the home off the market, often just temporarily. Ask yourself, why did the listing expire? If it was a sharp house, it should have sold, unless the price was unrealistic. Often the reason a home didn’t sell is because it’s a fixer. Take your time. Be sure you go through all of the listings. If you’re in a metropolitan area that has thousands of listings, it could take days, sometimes a week. But if you find a good fixer, it will be time well spent.

Other Sources of Fixers Sometimes there are FSBO fixers (FSBO stands for “For Sale By Owner”). A FSBO seller wants to tell you they’ve got the perfect fixer. But it’s not listed. So perhaps they’ve taken an ad in the local newspaper. Perhaps they’ve put the home on a Web site, maybe even their own. Or perhaps they’ve written it up on a 4-x-6 card and posted it at a local grocery or drug store. Where you get the information is irrelevant. I once bought a fixer after meeting the relative of a seller who was sitting next to me on a plane ride between Oakland and Los Angeles! We got to talking, she told me about the house, I made arrangements to see it, the seller and I agreed on a price, and within 30 days I owned it!

How Do I Evaluate a Fixer? Once you’ve found it, the next question you must answer is, “How much work is required?” That’s a lot harder to do than it may at first seem. The reason is that you have to get two important figures. The first is the value of the property after it’s finished, totally fixed up. The second is the amount of money it’s going to cost you to do the fixing. Here’s the best formula I’ve found for determining the amount you should offer on a fixer:

Formua for Making a Fixer Offer Value if in perfect shape $200,000 Less cost of fixing up −50,000 Less your time and/or profit −25,000 Your offer 125,000 When you think about it, this only makes sense. It’s going to cost you money to fix up the property. And it’s only fair that you factor in your time/profit.

TRAP YOU ARE WORTH IT! Don’t make the classic mistake of thinking your time isn’t valuable. It is. If not spent working on the fixer, you could be earning money elsewhere, or at the very least, relaxing with your family!

TIP YOUR COSTS WILL VARY The cost to fix up depends heavily on how much of the work you do yourself and how much you hire out. My suggestion is that when determining how much to offer, you always base this on hiring everything out. That way in case you err, you’ll at least not be erring on paying too much for the property. If you later do much, if not all, of the work yourself, your savings will be that much more.

How Much Will It Cost to Fix Up? There is an apparent contradiction in the fact that the house that looks the worst, a cosmetic fixer, often costs the most. The trouble arises from the fact that today sellers are sophisticated enough to know that cosmetic fixes are cheap and easy to repair, and they simply don’t want to give up any of their profits. Often, in order to get a really good deal, you’ll have to buy a house with very serious problems. Of course, that may be simply biting off more than you can chew. One excellent method here is to line up a series of people in the construction industry who are willing to come out and give you advice. You would, hopefully, have at least the following:

Advisors You Might Need  Carpenter/general contractor  Plumber  Electrician  Roofer  Carpet layer  Painter  Mason (for driveways, paths, foundations) The problem is getting them to come out and look over a property that you don’t yet own. You want them to give you advice, maybe a bid, before you buy. In fact, their input will help you to make the purchase decision.

However, their time is scarce and they may be hesitant to come out and give you a bid on a “maybe.” That’s why it’s important to contact these people in advance and try to gain their confidence. Tell them that you plan on using them. If not on this house (because you didn’t buy it), then the next one. If they won’t budge, and you absolutely need a quick opinion, you might have to pay for their time. Offer them 50 to 100 bucks to come out. Yes, it goes against the rules to pay for a bid, but if you need information fast, it can be the right thing to do.