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©
2002 Ruth E. Campbell. |
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Frequently Asked Questions Investing
in Real Estate - Q & A 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. 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) 708-2720. 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:* "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. Q: How do building codes work?
A: Building codes are established by local authorities
to set out minimum public-safety standards for building design,
construction, quality, use and occupancy, location and maintenance.
There are specialized codes for plumbing, electrical and fire,
which usually involve separate inspections and inspectors. All buildings must be issued a building permit and a certificate
of occupancy before it can be used. During construction, housing
inspectors must make checks at key points. Codes are usually
enforced by denying permits, occupancy certificates and by imposing
fines. Building codes also cover most remodeling projects. If you
are buying a house that has been significantly remodeled, ask
for proof of the permits involved before you purchase to avoid
future liability for fines. Resources: * "The Ultimate Language of Real Estate,"
John Reilly, Dearborn Financial Publishing, Chicago; 1993. 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. 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. 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. |