| Q: |
Where are fixer-uppers found? |
| A: |
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.
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| 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 must put 15 percent down while
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.
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| 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.
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| 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) 708-2720.
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 Fedeal 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, 7th and D streets S.W., Washington, DC
20410.
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| 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., Dept. SR01, 13326 Southwest 28th
St., Fort Lauderdale, FL 33330-1102; (954) 370-9153.
Resources:
* Profiting From Real Estate Rehab, Sandra M. Brassfield, John Wiley
& Sons Inc., New York; 1992.
* Remodeling magazine's annual "Cost vs. Value Report",
available for a nominal fee from the magazine; call (202) 736-3447 to
order a copy.
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| 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, Washington, D.C.; (202)
588-6000.
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| 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 first.
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.
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| Q: |
Are fixers a good idea in bad
areas? |
| A: |
Distressed properties
or fixer-uppers are everywhere, 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 buyers find the least
desirable house in the best 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 budget. Most experts say inexperienced
buyers should avoid run-down houses that need major structural repairs
and instead look for properties that only require cosmetic fixes.
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