BUYING A FIXER-UPPER
Buying a fixer-upper is 100% the most stressful way you can purchase a home, but this is THE ONLY way that I personally purchase properties and I am here to guide you through the process!
Imagine being able to design your own home… from layout, to kitchen and bathroom finishes, flooring, and light fixtures… and THEN having the most gorgeous house in the neighborhood with a TON of equity that most of your neighbors likely don’t have! Do you like the sound of that?
Step 1: Defining your goals
There are many ways to go about buying a fixer-upper. You can buy a move-in ready home with only minor updates needed… maybe just a kitchen or a bathroom and flooring.
You can also buy a complete disaster area, completely gut it, and renovate everything.
Depending on which direction is your preference, will define the types of properties and what type of price point we’re looking at. With a bigger project, we need to get a much lower price to accommodate the larger renovation budget. With light updates, you’re getting a home in better condition, but will still have some money to invest in your property.
Step 2: Figuring out financing
Buying a fixer upper, that needs simple updates can be done with a standard loan product, as long as the appliances work, there is no mold present on the property, no chipping paint, and there is nothing else in complete disrepair. The renovation would then need to be done in cash.
The other option is to use a renovation loan. There are both conventional and FHA renovation loans and each has a streamline and a full renovation option. The streamline product allows you to make light updates to a property, under $35k. This route doesn’t require a HUD consultant to come check out the property, and allows you to finance the rehab and pay the contractors out of an escrow account.
The full renovation loan is for a larger renovation. These products do not allow you to finance more than 110% of the after repair value (ARV). You will also need a HUD consultant, who is a professional that tells you what repairs must be completed to pass financing guidelines. You’re still able to use these products with 3% to 3.5% down on the total loan amount.
Lastly, there are the portfolio products, which are my favorite. The are not federally regulated and they have more lax terms. More contractors are willing to accept payment via these products. They do require 10% down but are interest only for one year, which allows you to do a larger project, or even a new build on a piece of land, with minimal outlay while you’re not living there.
Step 3: Finding a contractor
This person needs to be a licensed professional who is willing to accept payment via rehabilitation loan. I would check references and do your research when selecting a contractor. Selecting a bad contractor will ruin this experience for you.
Step 4: Finding the property
This is my specialty. I will find the properties that will get you what you want in the end if you explain your end goal to me clearly!
THINGS TO CONSIDER:
If your house is not livable, where will you live during the renovation? Can you afford renting while you’re not living in your new home or will you move in with family or a friend?
What are your non-negotiables in your new home? Are these items that can be created, or not (i.e. location can not be changed, where as having a huge master bath can with a layout change, baths can also be added)?
What will you do when the project is complete and you’ve created your dream home?