Rehabbing fixer-upper foreclosures takes some skill, some experience and some money, but it’s a lot easier than you think. The good news is you don’t need a lot of money to get started. You can borrow most of the money and turn a modest amount of cash into big profits.
15 Best Cities to buy Fixer-Upper Foreclosures.
To get you started, we’ve asked some experts to provide their top tips on finding, financing and fixing up these fixer-upper foreclosures.
Below are the top 7 tips. Get much more on this topic in a free RealtyTrac webinar on June 26.
Tip 1 — Look beyond just listed properties to find pre-foreclosure and bank-owned homes that are not yet listed for sale. RealtyTrac’s advanced search allows you to filter by age of property and estimated value to help you pinpoint those homes that are most likely to be fixer-uppers selling at a discounted price. See video below covering RealtyTrac’s advanced search and other features. Buying below market values is the first step to success. That is the number one key to profitably rehabbing a foreclosure.
Tip 2 — Get a rehab loan. Step two is using other people’s money (OPM) — namely Uncle Sam’s to purchase and rehab your foreclosure. There’s a little-known renovation loan from the Federal Housing Administration (FHA), which offers loans that cover both the renovation costs as well as the purchase price of a primary residence — all for just a 3.5 percent down payment.
The FHA’s 203(k) renovation loan, also known as the FHA rehab loan, is HUD’s primary program for the rehabilitation and repair of single-family properties, according to Dennis Walsh, CEO of REbuild USA, a Newport Beach, Calif., company that educates homebuyers about this loan product and connects them to qualified Realtors and lenders who can help them take advantage of it. The 203(k) loan is like a construction loan, with the first draw of the mortgage money going to buy the house. Then subsequent draws are made to pay the contractors for rehabilitation work as it is completed. The FHA 203(k) loan was designed for individuals who want to rehabilitate or repair a damaged home so they can live in it as their primary residence.
Tip 3 — Delegate your fix-up work to professionals, according to Reggie Brooks, a Los Angeles investor who has rehabbed more than 100 properties. “In the beginning, it might be worthwhile to spend your time working on your properties, but as the number of properties you own increases, you’ll be better served to delegate your fix-up work to someone else, while you focus on finding more deals,” advises Brooks.
If you are going to do a fair amount of work on your properties, always keep in mind that if you’re not a plumber, electrician, roofer, carpenter or such, don’t try to tackle jobs that are beyond your skill level. Leave those jobs for the professionals, he says.
Tip 4 — Shop around for the best prices for supplies and tools, Brooks recommends. Do a little shopping around for the best prices on materials. While your local hardware store may fill your needs when it comes to small items, rarely can they compete with the large contractor warehouse-type stores. If you are planning to do some or all the work yourself, purchase good quality tools, he recommends.
Much money is wasted on cheap tools that have to be re-purchased over and over again. If you’re performing a small job and have no desire to do your own contracting work, then it doesn’t matter as much.
Tip 5 — When rehabbing, painting is important. When painting the inside, consider using Pearl White, Navajo White and Antique White, which are the common colors used in residential properties. Using a shade of white paint in the interior will make the rooms feel larger. If you hired a painter, he would probably suggest that you use flat paint in every room except the kitchen and bathroom, where you would use a semi-gloss paint. Some investors use semi-gloss paint through their rentals, because it’s easier for a tenant to wash the walls.
Water-based paints are usually easier to work with, and they usually do a sufficient job. Consider using an oil-based paint in the kitchen, bathrooms, service porch, and on the trim. You’ll find that oil-based paint is more durable than water-based paint.
Tip 6 — Landscaping the front of your property gives it “curb appeal,” which is essential for getting the most from your property, whether you plan to rent or sell. If you’re planning to rent the property, the nicer you make the front of your property look, the better the tenant you’ll attract.
If the grass needs cutting, you can usually hire some of the neighborhood kids to clean it up. A schedule of watering and fertilizing should bring it back to life. If it’s necessary to get the yard looking good right away, then “sod” is your answer.
Tip 7 — Continue your education in real estate. The more you expose yourself to new real estate principles and techniques, the more you’ll learn. The more you know, the better prepared you are to solve the challenges you face and make better real estate decisions. Get started by attending RealtyTrac’s free webinar on this topic.