Plan to Count the Cost When Investing in a Fixer

Posted on: October 25, 2007

Thinking of investing in a residence that needs significant repairs? A wise investor will carefully consider the costs involved to insure it will be a profitable venture and not a losing proposition.

A fixer can be purchased with the goal of making the repairs and using the home for a rental. In which case, you will need to factor in the acquisition expenses, the repair expenses, the monthly mortgage payment, and the on-going expenses for maintenance and utilities. The cost of a good property manager might be included as well. Knowing what homes in the neighborhood are renting for will help you decide if the investment is wise.

If the goal is to buy the house and “flip” it, you need to consider the purchasing costs, the holding costs (interest, taxes, insurance, utilities, etc.), the repair costs, and the selling costs. Don’t forget to factor in the income taxes on the gain! You will need to know how much it could sell for when it is finished; a savvy Realtor® can help you with this.

Remember that one of the purchasing costs should be a good home inspector. This will help you to avoid buying a “money pit” and give you a chance to renegotiate with the seller prior to closing due to unforeseen problems discovered during the inspection. The inspection report will also include a handy “punch list” of projects to complete.

There are good opportunities to profit by purchasing fixer houses. Just be sure to use the services of a good realtor, a good loan officer, and a good home inspector.

Written by Mel Hamilton, Realtor® for PortlandRealEstate.com.