By Jeanette Joy Fisher
Question from reader:
"If I buy a fixer, how do I know that the market won't turn before I finish the house?"
Like most investments, no guarantees of profits come with real estate. You must learn as much as possible about the business before you risk your money. Some inexperienced investors lose money buying houses that just don't turn a profit.
When you're new to real estate investing, always remember your limitations. Use caution when considering houses that need structural repairs. Some rehabbers replace walls, plumbing, structural beams, sub-flooring, and electrical systems. These experienced real estate investors acquired those skills after years of experience or they have the money to pay for professional help.
If you find a house with structural problems, get estimates from reliable contractors to do the work. If the walls have too many cracks and bumps, you may need to hang new sheet rock or hire a professional plaster refinisher. Check for signs of plumbing problems such as water stains under sinks and loose flooring, and get estimates for professional repair. Take professional estimates into account before deciding whether or not to purchase a fixer property. Any big expense decreases your eventual profit.
When you first start out in your real estate "flipping fixers" business, you'll want to look for houses needing only cosmetic work. Look for houses that just need cleaning up, painting, and new flooring. Use your imagination when viewing these homes. Try to visualize the finished dollhouse as you look at structural features and the surrounding homes. Make offers on the ugliest houses in decent neighborhoods.
Don't be afraid of stinky houses that show horribly. Search for fixers with peeling paint, holes in the wall, stained carpeting, and trash in the yard. Remember, these houses won't look good to most buyers, but other real estate investors see them as gold mines.
The key to making money with fixers in a buyer's market is to get in and out fast. The real estate market could go down in value. Usually, this takes some time. You should understand your local economy so you're prepared. Here are five tips to help you make a profit:
- Buy low and sell for market value.
- Buy a home that you can improve in value. If homes in the neighborhood in excellent condition only sell for a few thousands more than fixers, look for another neighborhood to invest in.
- Plan your changes during the buying process. Be ready to fix the house right away.
- Fix the home for a home owner who will live in the house. Profile your target buyer and select interior design details that speak to this buyer. Make your home outshine the competition with extras that don't cost much like window coverings for privacy.
- When you're ready to sell, price the home right. Make a business plan to sell with marketing psychology.
You might not make as much from a fixer this year as you could have made last year, but you can still make a nice profit. Last year, we made over $100,000 on a fixer. This year, we expect to make only $40,000 on a similar home, which is still a good paycheck for part time work.
Each geographical area comes with its own economic conditions and possibilities. Learn about your economic outlook and explore your possibilities.
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Copyright © 2006 Jeanette J. Fisher, author of best-selling Doghouse to Dollhouse for Dollars: Using Design Psychology to Increase Real Estate Profits and other books. For more information, see Fixing and Flipping Houses.
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