What are flags to look for when looking at fixer uppers?

Question

Hi,

.   I'm planning on purchasing my 1st property. I plan on purchasing ong that is a fixer upper. With that, what are the main things to notice when initially analyzing a fixer upper?

Hamp Lee III · Answer

For your first property, I recommend properties with cosmetic issues only. Start small, but take action.

I wish you all the best.

Kevin Crowell · Answer

Look at the age of the property. You don't want something too old. If it's too old, you'll get into an old roof, lead paint and that can be pricey!! Hamp Lee gave some great advice! Small issues are the best! You have to look at it from your own risk tolerance. If you want to hit a home run, you need to be willing to take on more problems. Seeing that it is your 1st, start small and work your way up. Less risk for your first, learn the process and get more comfortable as you get more experience. Good Luck!

Doug Smith · Answer

Outside of having a competent General Contractor look at it for foundational issues/settlement, mold, and other things that are super expensive to correct, I'll focus my answer on the financial. We start with the As Repaired Value (ARV). We also have a real estate firm, so we do that part ourselves, but if you don't, get a good, competent real estate pro to help you create that realistic ARV number. Have your contractor prepare a scope of work for you. You have to be careful here because you don't want to run your contractor ragged doing lots of work if you don't think you'll land the property and you don't think it's going to be a do-able deal. Then, back out your expected profit margin, the bid from the scope of work, the time-value of money (interest/payments on any debt), and remember to add in a "contingency reserve" to allow for any unexpected hiccups during the process...say around 10%. That gives us our "Strike Price", or the max we'll pay for the property. That is a number we'll never, never, ever, ever go over...no matter what. Remember it's just a math problem. No matter how sexy the property is, it's just math. That may not help as I focused on the financial, but that's how we do it. Good Luck out there.

Chris Seveney · Answer

@Lemuel Agbanlog

There are way to many things to list as it depends on age of propert - for example older homes may have lead paint, asbestos, knob and tube wiring, newer homes in 90’s could have Chinese drywall… if I were to list everything it would be several hundred items

This is why you must partner with experienced professionals who can evaluate the risk.

Keith Mintz · Answer

There are many things that you can look for depending on your criteria. If you're planning to do quick flips, you want to generally use the 70/30 rule.

According to this rule, the total purchase and renovation costs of the property should not exceed 70% of the anticipated after-repair value (ARV) of the house, leaving a 30% profit margin.

Here's how the 70/30 rule is applied:

• After-Repair Value (ARV): Estimate the potential selling price of the property after all the necessary renovations and repairs have been completed. This estimation is typically based on comparable sales in the area.
• Total Costs: Calculate the total costs involved in acquiring the property and completing the renovations. This includes the purchase price, closing costs, renovation expenses, financing costs, holding costs, and any other associated expenses.
• Applying the 70/30 Rule: Ensure that the total costs of the project do not exceed 70% of the estimated ARV. The remaining 30% represents the desired profit margin.

For example, if the ARV of a property is estimated at $300,000, the total costs of acquisition and renovation should ideally not exceed $210,000 (70% of $300,000). This would leave a profit margin of $90,000 (30% of $300,000).

Matthew Paul · Answer

Unless you can do the work yourself and do it quickly , or you have a great contractor , I wouldnt look at a fixer upper .  It will take 4 to 7 months to get the house ready , it will cost more than expected . All the repair costs come straight out of your pocket , Spending $ 800 a day on materials is easy . Not including labor costs . It may take a month or two to rent , So you add 9 months of lost rent into the formula .

Or you buy a house that needs minimal refreshing , costs a bit more on the front end but less in the long run .

What are flags to look for when looking at fixer uppers?

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