Here’s a good article about buying fixers in today’s market.  Although it can seem like a great opportunity, make sure you consult with your Realtor and contractor to make sure the numbers make sense. 

-Steven Fong


How To Buy A Home That Needs Work But Wont Zap Your Plans And Budget

Todays market offers a great opportunity for home buyers -- and investors -- to purchase properties at prices below market value. Many homes are being sold at a discount today because they are in some phase of foreclosure and/or they need repairs, improvements, replacements or cosmetic attention.

For example, in the first quarter of 2011, bank-owned properties (foreclosures) nationally sold at an average discount of 35% compared with the national average sale price of properties not in foreclosure, according to RealtyTrac, the online marketplace for foreclosure properties. During the same period, RealtyTrac reports that pre-foreclosure sales (including short sales) sold at an average discount of 9% below the national average.

If youre looking to buy a home that promises quick gains through judicious upgrades and hard work -- known as sweat equity -- youll need to be careful about what and where you buy. Your best-laid plans could come to ruin if you dont have enough information about the property beforehand.

Here is some valuable guidance to help you gather the facts youll need to make a sound decision about buying a fixer-upper property (or any home, for that matter).

1. Check Local Zoning
Zoning regulations specify how a property can be used and how it can -- or cannot -- be changed. Think about how you want to change the property in question, and then be sure your alterations, additions, etc. will comply with zoning restrictions. While homeowners may apply for a variance to zoning, the process could significantly delay your timeline, and there's no guarantee your request would be approved.

Typical zoning specifications include:

  • Usage type -- residential, commercial or mixed.
  • Occupancy restrictions --> the maximum number of people who can occupy a property and how many families may be housed by it. Would you be allowed to add an in-law suite or split a home into two or more units?
  • Restrictions on rental properties -- rental-use restrictions, requirements, inspection requirements, permits.
  • Setback requirements -- how close structures can be to property lines. Restrictions may apply to buildings (house, garage, carport, shed) as well as to items such as a driveway, patio, porch, deck, fence, even a bay window, chimney or eaves.
  • Structures -- the number, type, size, even style of buildings and other structures. Are detached garages permitted? Swimming pools? Sheds? Gazebos/screened-in porches? Chicken coops?
  • Other -- restrictions on tree removal, lawns, parking, animals, special events, home-based businesses, etc.

Beware of replacing grandfathered items. For example, a house may have an eight-foot fence that was allowed to remain after zoning laws were changed to restrict fence height to no more than six feet. If you decide to replace the existing fence, youll have to meet current zoning requirements.

2. Investigate Local Building Codes
Building codes are designed to ensure the structural and fire safety of buildings. Codes cover pretty much everything relating to building design, construction, additions, enlargements, alterations, even repairs and maintenance. They include standards for plumbing, electrical and mechanical construction. If you plan to undertake improvements to a home yourself, you
ll need to be familiar with local code. If hiring a contractor, be sure to find one who is licensed, insured, experienced and knowledgeable. In both cases, youll need to obtain mandated permits and schedule required inspections.

3. Check For Permits
Have changes already been made to the home that required permits? If so, ask to see those permits. You want to ensure that the addition/alteration/construction was done properly, so you won
t be faced with the time and expense of having to redo a bad or unsafe job.

4. Read HOA Covenants
If the home you are considering is governed by a homeowners association (HOA), you
ll want to check the HOA covenants to see whether they will in any way limit your plans. Some of the changes you want to make may require you to submit detailed plans for approval by the HOA board or designated committee -- which could deny your request(s).

5. Consider Easements
An easement is a property right that has been granted to an individual or entity that does not own the property to which the easement is attached. One common type of easement gives a third party the right to use a defined area of another owner
s property for a general or specific purpose. Easement restrictions could, for example, prevent you from building on the easement area or from installing fencing that would prevent access to or through it. A neighbor could have an easement on a property that restricts its owners from obstructing the neighbors scenic view. If you are considering a property that comes with an easement, be certain you understand how it could affect your plans to change the home.

6. Order Inspections
A licensed home inspector will check the major systems of the home -- electrical, plumbing, heating, air conditioning, appliances, foundation, roof, etc. -- and report on their condition and whether they are working properly. Remember, though, a general home inspection may not find everything that
s wrong with the home. For example, inspectors are not required to actually get up on your roof, but may inspect it from below using binoculars or from inside your attic.

A variety of conditions do not usually fall within the scope of a general home inspection, including areas that are not visible or accessible at the time of the inspection or that are underground or within the walls, floor, etc. of the home. Other exclusions include infestation by wood-destroying pests (such as termites), septic systems, wells, presence of mold, structural and geological engineering, and more. Given these exclusions, a home buyer would be prudent to order inspections by specialists for specific issues that may be of concern, such as:

  • Pests (many lenders require a pest inspection)
  • Radon or methane gas
  • Discoloration/mold
  • Asbestos
  • Lead-based paint
  • Foundation and structural integrity
  • Septic system and well

7. Investigate Development Plans
Do some research to find out whether the city, county or state has plans or has approved private-entity plans that might adversely affect the home
s value -- say, a new or wider road, installation of high-voltage power lines, an industrial or commercial development, etc. If there is vacant land adjacent to the property, find out who owns it, how it is zoned and what the plans are for it, if any.

While youre looking for a home that has great potential, give us a call to find out how we can help you arrange for a mortgage that meets your needs. With the right mortgage loan, you can enjoy affordable monthly payments and have enough money left over to take your fixer-upper to the next level -- a dream home to live in or an income property that renters will love.