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.
Q:
Are there programs for
fixer-uppers?
A:
If you need 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.
Q:
What kind of return is there
on remodeling jobs?
A:
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.
Q:
Are there gov't programs for
rehab?
A:
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 to
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.
Another program is the
Federal
Housing Administration's Title 1
FHA loan program.
Resources:
* "Rehab a Home With HUD's
203(K)" brochure, U.S.
Department of Housing and Urban
Development, 7th and D streets
S.W., Washington, DC 20410.
Q:
What are some resources for
info on home improvements?
A:
If you're getting ready to
embark on a home improvement
project involving contracting
help, "Ready, Set, Build: A
Consumer's Guide to Home
Improvement Planning Contracts"
lays out a road map for
selecting the right contractor,
obtaining competitive bids up to
what to include in a contract.
There also is information on
consumer rights, liens and
financing.
The book is available for
$9.95 through Consumer Press and
Women's Publications, Inc.,
Dept. SR01, 13326 Southwest 28th
St., Fort Lauderdale, FL
33330-1102; (954) 370-9153.
Resources:
* Profiting From Real Estate
Rehab, Sandra M. Brassfield,
John Wiley & Sons Inc., New
York; 1992.
* Remodeling magazine's annual
"Cost vs. Value Report",
available for a nominal fee from
the magazine; call (202)
736-3447 to order a copy.
Q:
Are there any special tax
breaks for historic rehab?
A:
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 alternation of a
historic structure.
Resources:
* National Trust for Historic
Preservation, Washington, D.C.;
(202) 588-6000.
Q:
What are some guidelines to
follow when trying to find a
contractor?
A:
While hiring contractors
recommended by friends is
usually a safe route, never hire
a construction professional
without first checking him or
her out first. 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.
Q:
Are fixers a good idea in bad
areas?
A:
Distressed properties or
fixer-uppers are everywhere,
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
buyers find the least desirable
house in the best 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 budget. Most
experts say inexperienced buyers
should avoid run-down houses
that need major structural
repairs and instead look for
properties that only require
cosmetic fixes.
