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Are fixers a good idea in
bad areas? Are there gov't programs for rehab? Are there programs for fixer-uppers? What are some guidelines to follow when trying to find a contractor? What kind of return is there on remodeling jobs? Are fixers a good idea in
bad areas? It depends. Distressed properties or fixer-uppers can be found 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. Are there any special tax
breaks for historic rehab? 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: Are there gov't
programs for rehab? 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) 708-2720. 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: Are there programs for
fixer-uppers? 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. What are some
guidelines to follow when trying to find a contractor? 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. What kind of return is
there on remodeling jobs? 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. Where are fixer-uppers
found? 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. Copyright © 1995-99 Inman News Features |
