The often heard phrase "Buyer Beware" is never more appropriate than when considering the purchase of a fixer-upper.You really need to know exactly what you’re getting into before buying.
It’s commonly believed that fixer-upper properties represent easy money that is ripe for the taking. You can buy it, do a little work on it in your spare time, and then resell quickly for a large profit. Usually, this simply isn't the case. Although, with proper planning and foresight, good profits can be made buying "distressed" properties at less than market value, making appropriate improvements and repairs, and then reselling. Also, for many first time buyers who intend to live in the house while working on it, buying a fixer-upper can be the very best option. It’s less risky buying a fixer-upper when you can live in the house while fixing it. And of course, by living in the house for at least 24 months you should be able to avoid paying regular income taxes on the profits.**
The most important item to consider before making a decision on such a purchase is what needs to be fixed. Any time you are spending money on improving a home with the notion of selling it later, strive to spend your money on things that buyers can easily see and appreciate. Things like new paint and removing trash from the property cost little but have a major impact on curb appeal. Houses that only have cosmetic problems such as peeling paint, trash and debris in the yard, worn carpet, or undesirable wallpaper are the best bet. This is especially true for the first time buyer looking to live in the house for a while before reselling. Fixing and cleaning cosmetic issues is fairly easy and inexpensive. In most cases, it usually yields a good return on investment, particularly when you can do the work yourself. Kitchen and bathroom remodeling usually yields the highest return. Don’t be afraid of buying a fixer-upper in need of this kind of repair, however, properties with structural damage, or a floor plan that requires major work to remedy, usually can’t be "fixed up" at a profit and you should proceed with caution when considering a property in this condition.
It is always recommended that you have an inspection performed before buying a fixer-upper by a home inspector or construction professional. Make sure that satisfactory completion of such inspections are a condition of purchase in any contract you sign. Then, try to negotiate with the seller to pay for all or part of the cost of needed repairs disclosed in the inspection report. Often, sellers will be willing to lower the sales price to sell the home "as is" instead of paying for the repairs.
Be careful that you don’t over pay. If you plan to resell quickly, paying too much up front can doom your plans for quick profit. Research the market for reselling and have an exit plan for selling the house in place before making an offer.
**Please consult your Tax Advisor or Certified Public Accountant regarding your own personal tax situation.