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.
Q:
Are
there programs for fixer-uppers?
A:
If you need 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
no longer may participate - only owner-occupants.
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.
Q:
What
kind of return is there on remodeling jobs?
A:
"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.
Q:
Are
there gov't programs for rehab?
A:
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) 708-1112.
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 to 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.
Another
program is the Federal Housing Administration's
Title 1 FHA loan program.
Resources:
* "Rehab a Home With HUD's 203(K)"
brochure, U.S. Department of Housing and
Urban Development, , Washington, D.C.;
www.hud.gov/offices/.
Q:
What
are some resources for info on home improvements?
A:
If you're getting ready to embark on
a home improvement project involving contracting
help, "Ready, Set, Build: A Consumer's
Guide to Home Improvement Planning Contracts"
lays out a road map for selecting the right
contractor, obtaining competitive bids up
to what to include in a contract. There
also is information on consumer rights,
liens and financing.
The book
is available for $9.95 through Consumer
Press and Women's Publications, Inc.,
13326 Southwest 28th St., Fort Lauderdale,
FL 33330-1102; (954) 370-9153; www.bookguest@aol.com.
* Remodeling Magazine's annual
"Cost vs. Value Report", available
for a nominal fee from the magazine; call
(717) 399-1900, ext. 146; Online
Store.
Q:
Are
there any special tax breaks for historic
rehab?
A:
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 alternation
of a historic structure.
Resources:
* National Trust for Historic Preservation,
1785 Massachusetts Ave, NW, Washington,
DC 20036-2117; (202) 588-6000, www.nationaltrust.org.
Q:
What
are some guidelines to follow when trying
to find a contractor?
A:
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.
Q:
Are
fixers a good idea in bad areas?
A:
It depends. Distressed properties or
fixer-uppers are 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.
Copyright
2006 Inman News Features
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