Is it smart to even consider a fixer-upper?
It depends. Distressed properties or fixer-uppers can be found anywhere, even in
wealthier neighborhoods. Such properties are poorly maintained and have a lower
market value than other houses in the neighborhood.
Many experts recommend that before you make such an investment, first find the least
desirable house in the best neighborhood. Then do the math to see if what it
would cost to bring up the value of that property to its full potential market
value is within your budget. If you are a novice buyer, it may be wiser to look
for properties that only need cosmetic fixes rather than run-down houses that
need major structural repairs.
Is there a tax break for a fixer-upper house if it is considered historical?
Qualified rehabilitated buildings and certified historic structures currently enjoy a 20
percent investment tax credit for qualified rehabilitation expenses. A historic
structure is one listed in the National Register of Historic Places or so
designated by an appropriate state or local historic district also certified by
the government.
The tax code does not allow deductions for the demolition or significant alteration
of a historic structure.
The U.S. Department of Housing and Urban Development's Section 203 (K)
rehabilitation loan program is designed to facilitate major structural
rehabilitation of houses with one to four units that are more than one year old.
Condominiums are not eligible.
The 203(K) loan is usually done as a combination loan to purchase a fixer-upper
property "as is" and rehabilitate it, or to refinance a temporary loan to buy
the property and do the rehabilitation. It can also be done as a
rehabilitation-only loan.
Plans and specifications for the proposed work must be submitted for architectural
review and cost estimation. Mortgage proceeds are advanced periodically during
the rehabilitation period to finance the construction costs.
For a list of participating lenders, call HUD at (202) 708-2720.
If you are a veteran, loans from the U.S. Department of
Veterans Affairs also can be used to buy a home, build a home, improve a
home, or refinance an existing loan. VA loans frequently offer lower interest
rates than ordinarily available with other kinds of loans. To qualify for a
loan, the first step is to apply for a Certificate of Eligibility.
Are there special loans for Fixer-uppers?
If you need a home loan to buy a "fixer-upper" and remodel it, look at the U.S.
Department of Housing and Urban Development's Section 203(K) loan program. The
program is designed to facilitate major structural rehabilitation of houses with
one to four units that are more than one year old. Condominiums are not
eligible.
A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper"
property "as is" and rehabilitate it, or to refinance a temporary loan to buy
the property and do the rehabilitation. It can also be done as a
rehabilitation-only loan.
Investors must put 15 percent down while owner-occupants are required to come up with only
3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements.
Two appraisals are required. Plans and specifications for
the proposed work must be submitted for architectural review and cost
estimation. Mortgage proceeds are advanced periodically during the
rehabilitation period to finance the construction costs.
Building codes are established by local authorities to set minimum public-safety
standards for building design, construction, quality, use and occupancy,
location and maintenance. There are specialized codes for plumbing, electrical
and fire, which usually involve separate inspections and inspectors.
All buildings must be issued a building permit and a Certificate of Occupancy before
it can be used. During construction, housing inspectors must make checks at key
points. Codes are usually enforced by denying permits, occupancy certificates
and by imposing fines.
Building codes also cover most remodeling projects. If you are buying a house that has
been significantly remodeled, ask for proof of the permits involved before you
purchase to avoid future liability for fines.
How do I find a good contractor?
While hiring contractors recommended by friends is usually a safe route, never hire a
construction professional without first checking him or her out. If your state
has a licensing board for contractors, call to find out if there are any
outstanding complaints against that license holder. Also, call your local Better
Business Bureau to see if there are any complaints on file.
If you are satisfied with the answers you find there, interview the contractor
candidates. Ask what kind of worker's compensation insurance they carry and get
policy and insurance company phone numbers so you can verify the information. If
they are not covered, you could be liable for any work-related injury incurred
during the project. Also be sure that the contractor has an umbrella general
liability policy.
If they pass the insurance hurdle, next check some of their references. A good
contractor will be happy to provide as many as you want.
Finally, don't let yourself be rushed into making a
decision no matter how competitive the market may seem. Also, never pay a
deposit to a contractor at the first meeting. You may end up losing your
money.
Is remodeling worth the price and time?
Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that
question. The most important point to remember is that remodeling a home not
only improves its livability for you but its "curb appeal" with a potential buyer
down the road.
Most recently, the highest remodeling paybacks have come from updating kitchens and baths,
home-office additions and extra amenities in older homes. While home offices are
a relatively new remodeling trend, for example, you could expect to recoup 58
percent of the cost of adding a home office, according to the
survey.
How do I look for fixer-uppers?
You can find distressed properties or fixer-uppers in most communities, even
wealthier neighborhoods. A distressed property is one that has been poorly
maintained and has a lower market value than other houses in the immediate area.
Ascertaining whether the property you're interested in is a wise investment takes some work.
You need to figure what the average house in a given area sells for, as well as
what the most desirable houses in that area are like and what they cost.
Some experts suggest that buyers who take this route try to find a "cosmetic fixer"
that can be completely refurbished with paint, wallpaper, new floor and window
coverings, landscaping and new appliances. You should avoid run-down houses that
need major structural repairs. A house price that looks too good to be true
probably is. A smart buyer will find out why before buying it.
The basic strategy for a fixer is to find the least desirable house in the most desirable
neighborhood, and then decide if the expenses needed to bring the value of that
property up to its full potential market value are within one's rehab
budget.
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1998-2021
Copyright Stephen T.
Ames All rights reserved