Fixing Houses

I have been trying to find a way to buy and fix up old houses and sell them at a higher price, to make money. This is not a simple thing to do. The first step is the hardest, finding a property that has the "right things wrong with it," that I can fix up without costing too much money, so that I can make a profit when I sell it.

There are many costs related to buying selling property. The biggest one is the 6% fee the realtor charges the seller. There's fees related to a lender lending me the money to buy the place, since I don't have enough money to buy it with all-cash. Then there's insurance. Plus let's not forget the cost of repairing the place - time and materials. The labor generally costs more than the materials -I try to do as much as I can myself; it saves a lot of money.

I'm learning what kinds of things I'm good at, and what things I really want someone else to come in and do. I like to repair electrical wiring outlets fans, spackling/caulking, painting, cleaning, weeding, moving junk out of the yard, etc. I don't like working on heaters, air-conditioning units, plumbing, roofing.

Repairing houses is fun - but can I make money at it? The problem is, once I see a listing in the newspaper for a "fixer upper", the owner is usually asking too much money. If I buy it anywhere near the asking price, I cannot make any money. The owner is already trying to milk it for as much as they can get for it.

No, the trick is to find property owned by a motivated seller. Someone who really wants the place sold, now, and is willing to accept less money for it because it's in disrepair. Why would anyone sell it for less than it's worth? There are many reasons. A person may need a bunch of cash, fast. They may be moving out of town, bought another place, and the old one hasn't sold yet; they have to sell NOW so they don't have to pay 2 mortgages. Or it could be a rental unit where the old tenants smashed up the place, and the current owner is sick of managing the rental property themselves. It could be connected to a divorce battle, or an inheritance to a bunch of grown up kids who don't care about the place, they just want to sell it and split up the money ASAP.

Whatever the reason, you have to look long and hard to find these places, from what I'm seeing. I'm new to the business, and I haven't found anything yet that will work for my numbers. But that's the most important thing - I did my research to learn what costs are associated, so I can tell the maximum (roughly) that I could pay for a place and still turn a profit, once I fix it up.

Think about it this way: If you can estimate the price it will sell for once it's fully restored, and subtract all the known fees and costs, the price you end up with is the MAXIMUM, the break-even point. I better buy it for less than that if I want to make some money on it.

I bought a book that's very interesting, talking all about fixing fixer-upper properties and keeping them for cashflow and/or selling them for a profit. The problem is, the book was written 3 years ago, before the prices of houses went thru the roof (so to speak). All the examples are like, "you buy a 3 bedroom 2 bath house for $100,000..." which is nearly ridiculous in the Phoenix Arizona metro area where I live today. In all those examples, it's easy to make cashflow from normal rents - the rent pays for the mortgage, and then some. That's just not true today.

I came close with one property. It was a 630 sq ft house (tiny!) on a normal size lot, in a neighborhood where every other house was 1100-2000 sq ft in size. It was a corner lot, great location. But the place was an absolute mess. It would have to be torn down and started all over again, including repouring a bigger foundation. Repairing this property would be more costly than starting with a bare plot of land - you'd have to tear down what's there and haul it away to the dump, paying for trucks workers dumping fees... it just would not be worth it.

So, I'm still looking, still trying to figure out how to make this work.

If you have any ideas, I'd love to hear it!

technorati tags: property, flipping, house, investment, phoenix, fixerupper