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Find A Fixer-Upper That Has A Profitable Future

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Robert J. Bruss

With home mortgage interest rates at or near record lows, it’s a great time to buy. But how can you buy a home to take advantage of these rates and make a profit down the road?

The easiest way to earn a profit on a house or condominium purchase is to buy a residence needing cosmetic fixes. Look for property that needs easy fixes, such as interior and exterior painting (the most profitable improvement of all), new wall-to-wall carpet or refinished hardwood floors, new light fixtures, minor repairs and fresh landscaping.

But avoid buying a home that needs major work, which doesn’t add market value. Examples include a new roof, foundation repairs, new plumbing, new wiring, kitchen remodeling and bathroom renovation. Presuming the property you want to purchase meets the easy-fix tests, here are other factors required for a profitable home purchase:

* A basically sound, modestly priced residence without major structural defects.

Although it’s possible to profit from buying luxury fixer-upper houses in the high-price range, sticking to bread-and-butter houses that more potential buyers can afford is best. If you are buying to turn a profit, you’ll probably want to sell the residence within a year or two after fix-up, so buy a home near the median sales price in your vicinity. Median price means an equal number of homes sell above and below the sales price.

* A good location. This doesn’t mean buying in only the best neighborhoods. Be sure to ask local police about the crime rate for the neighborhood.

Part of buying in a good location includes checking the quality of the local public schools, even if you don’t have children. Top-quality schools enhance home value appreciation, whereas poor-quality schools keep down home values. Local realty agents should have school statistics, based on test scores, readily available.

* Buy at least 25% below the market value of comparable nearby homes in good condition.

If you want to make a profitable home purchase, it’s essential to buy well below full-market value to allow room for improvement costs. Whether you resell your home soon after fix-up or keep it for long-term investment, buying below market value is key.

* Purchase from a motivated seller. An important key to buying a home below market value is to purchase from a motivated seller.

Examples of highly motivated sellers include those who must sell due to a birth in the family (need a bigger house), death in the family, unemployment, illness, divorce, marriage, drug or alcohol problems, foreclosure, management headaches (if it’s a rental house), retirement and financial problems.

Ask why the house is being sold so you can tailor a purchase offer to meet the seller’s needs.

To illustrate, if you learn the seller is retiring and moving to live close to relatives, that seller might be an excellent candidate for seller carry-back mortgage income at a favorable interest rate, such as 6% in today’s market.

* Acquire a home with affordable mortgage financing. As an owner-occupant home buyer, if you have steady income and decent credit, you can probably obtain a mortgage for 90%, 95%, 97%, 100% or even 103% (to include closing costs) of the home’s purchase price.

Be sure to get pre-approved for a maximum mortgage before starting your quest for a profitable home purchase. Then you’ll know what price range you can afford.

To find profitable fixer homes that can be bought at a bargain price, there is no substitute for a top-quality buyer’s agent familiar with the local market.

These agents can show you home sales listings from the multiple listing service, or MLS, for-sale-by-owner listings, and even foreclosures and other distress properties.

When you find a profitable home you want to own, get busy and make your written purchase offer. The seller will accept it or counteroffer, giving you the opportunity to accept, reject or counteroffer again. Of course, always include in your purchase offer a professional inspection contingency clause. That means, after the seller accepts your purchase offer, you have the right to hire a professional home inspector.

You can then accept the report, ask the seller to pay for repairs recommended by the inspector, buy the home as is and make the repairs at your own expense, or cancel the sale and get a refund of your earnest money deposit.

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