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.
What are building codes?
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? ASK LISA BEAR!
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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