Three Tips to Find the Right Fixer-Upper
Guest Post by Bret Engle/ DIY Guys.net
Three Tips to Find the Right Fixer-Upper for Your Needs and Budget
Hats off to first-time buyers willing to invest in an old home with good bones. Not only are you willing to brave the complicated world of finance but also the complex renovations that a fixer-upper entails. But there’s a bright light at the end of the tunnel: investment value. Do it right, and you’ll end up with a property that’s worth twice as much as what you paid. Do it wrong, and you’re in hot water. Here are some steps to avoid that latter scenario.
Figure Out Your Budget
In general, by using your savings to make a down payment, you lower your monthly fees. In fact, if you pony up 20 percent or more of the value of the property, you no longer need private mortgage insurance, which not only takes a bite out of overall costs, but also simplifies the buying process.
As far as your mortgage, that depends on your monthly income. In general, lenders make their calculations based on the 28/36 ratio, whereas monthly payments take up no more than 28 percent of the combined monthly income of the couple buying the house with a total maximum debt load of 36 percent, including student loans and car payments.
Here are a few more items to keep in mind. The first is the annual percentage rate, which consists of the interest of your home loan plus costs of financing. It actually serves as an indication of what you’ll be paying over the lifetime of your mortgage. You also have to figure in the costs of renovation, which can start at $30,000. This may need to come out of savings, which means a lower down payment. There’s no easy solution, which is why you should consult a lender before hitting the open houses.
In addition, tap into online tools to help you calculate how much house you can afford. They’ll take your income and monthly spending into consideration, as well as your down payment to determine your mortgage. You can also learn more about the local real estate market by checking average home prices.
Find the Right Property
As in all real estate, the key is location, and this may be even more important if you’re spending so much on renovations. To get the most out of a flip, make sure the neighborhood is on the up, which means gentrification.
For those planning to put down roots, the quality of the local school district is a determining factor for those planning to have children. Don’t forget your own comfort, which may depend on walkability, an increasingly valuable asset among the younger generation. That you can judge with your own two feet and eye out for amenities such as restaurants and shops.
Before shopping for homes, it’s definitely worth enlisting the help of a local realtor in your target area. An experienced real estate agent will understand market trends, and they can steer you in the right direction to find a home that suits your needs and budget.
When settling on a specific house, you may want to avoid budget-busting structural damage, which means finding the right home inspector. An experienced and skilled home inspector can conduct a standard inspection (examining things like the roof, exterior, and foundation of a home) and test for asbestos and radon.
Fix It Up the Right Way
If you decide to tackle some of the home repairs, make sure you invest in a handheld drill to make projects easier. You’ll also need a hammer and power saw. Once you begin room-by-room remodeling, you can find a safe refuge in one of the finished areas and make it your base.
Thus far, most of the work should have been handled by a contractor, but there is plenty that you can do to spruce things up and boost the value of your investment. These include installing lighting to make the house appear more spacious or replacing carpets with more elegant hardwood floors. You may also need to replace windows that are cracked or showing signs of wear (but make sure you bring in professionals to ensure this is done properly) Don’t forget the exterior as a few key landscaping projects give you a wonderful place to relax in the summer as well as added curb appeal when it comes time to sell.
Which brings us to the final question: To flip or not to flip? In this case, consider your entire investment portfolio. Holding would be a better strategy if you need a long-term investment with a steady increase in value. Flipping could pay off big time in the short term but at a greater risk. Choose wisely.
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