12-10-2012 02:32 PM
I've been seeing quite a few listings where the house was bought 3 to 6 months ago and was just relisted after being renovated for 200-300K more! Here's an example: http://www.redfin.com/WA/Seattle/128-N-49th-St-981
I have a few questions on that:
1. How much will the investor have actually spent on renovations in a case like this?
2. I'm not planning on doing the flip myself, but hiring a contractor. Would the cost be similar to what an investor spent or would it be much higher?
3. If you by a fixer upper planning to live in it, is it possible to get a mortgage that covers the renovations? For example, using this same listing as example. Let's say I was the one who bought the house back in September for 360K and I knew I'd need 200K to renovate it to my liking, would a bank approve a mortgage of 560K so I could fix the house?
I'm just thinking this might be a way to avoid the current multiple offer situation as most buyers are not interested in fixer uppers. Or I guess I'm maybe just watching too much Property Brothers on HGTV :-)
12-10-2012 02:45 PM
The scale of the renovations can vary drastically- I've seen some remodels going down to the studs with $100k+ worth of work, others are just a little landscaping, paint, and appliances, so the amount of money they put in can vary quite a bit.
The loan you're looking for is a 203k loan that allows you to buy and renovate the property.
12-10-2012 04:36 PM
There are a lot of cash investors buying up the worthwhile fixer-uppers. So you'll still get a lot of competition if you want to buy the home, only now your competitors don't have the financing clause you have.
If you hire contractors to fix the house, the "home improvement resale value" rarely ever reaches 100%. If you are not aware of the market and/or not good at hiring contractors and/or don't have good taste, your improvements will likely only be 40% to 70%, which means that you are losing money.
The investors have contractors--or are contractors--and so they get contractor prices for their materials. They are the general contractor, which you would either have to pay for or spend time being one yourself. Also, in some situations, the contractors have to be paid anyway, so the investor might as well put them to work on the fixer upper.
Yes, you can get a 203k rehab loan. But honestly, unless you already know what you are doing, or you are willing to lose money to learn/have fun, I wouldn't recommend it.
12-10-2012 05:07 PM
One significant hurdle is that if the seller [flipper] moves the house in less than a year from purchase, they are required to be a GC in washington
In addition to that, ask yourself if you have the discerning eye that will make you property attractive, and the judgement to set aside your own preferences enough to be successful. Then make sure you know how to budget enough to make money, but not cheap out and join the legions of flippers who get the scathing reviews on here.
12-11-2012 12:56 PM
Of course if you just want to flip one house in under a year not being a contractor only matters if you purchased the house with the "intent" to flip.
You CAN buy a house to fix up and move in to , then change your mind and sell it in under a year and not be a contractor. What matters is did you plan to flip it or did you sell due to hardship, change you mind etc.
I am not suggesting fraud , but if you did do it, you would need to ensure your loan was for you as resident and all along the way make it clear the house is for you to live in.
Of course holding it for over one year does shift it from a short term capital gain to a long term and is a big tax savings!
So you might move in or rent it for a while then remodel it and then get your cheap tax. Plus if the marketdoes well your selling price might well be have risen more than the increased holding costs.
It is something you need to think about. and talk to your advisor
12-11-2012 01:06 PM
Thanks ethidda. That's exactly the kind of information I was looking for.
I knew there had to be something to it as some of those houses look like they could never be remodeled for less than the markup the seller is asking for.
So it seems that the best option is to buy a house that needs little work, like a remodeled kitchen or bathroom, but something you can do after moving in.
Is this 203K type of loan still applicable for smaller remodels? Are they a separate loan from the main mortgage?
And to clarify, my plan is to move into the house, not flip for reselling.
12-11-2012 02:23 PM
You're right, finding something needing some cosmetic updates is the best bet. I personally don't trust most flips since you don't know where corners were cut, and doing renovations yourself means you can tailor it to your tastes.
The 203k loan is part of your mortgage, not separate and can cover small renovations. Here's a nice summary:
12-12-2012 06:54 AM
I just got a 5 year home equity loan to do some remodeling and the interest rate was 2.99% which is less than my 3.5% mortgage rate.
12-12-2012 11:21 AM
"In addition to that, ask yourself if you have the discerning eye that will make you property attractive, and the judgement to set aside your own preferences enough to be successful. "
As an avid shopper, I've gotta say that in the Seattle market, these homes are very formulaic and appear as though the "designer" (ha!) walked into Home Cheapo and bought whatever current special he could get, then added in the granite or faux-granite countertops to kitchen as bath (because everyone wants granite.......not!). If not this route then an "eco-friendly/ green" remodel with bamboo and low VOC paint. Oooohh, aaahhh.
So over it. Why not design based on the HOUSE? Oh right, then it wouldn't be a money-making flip.
Sorry but I can spot these a mile away and I'm refusing to buy 'em. They're the next ugly trend that somebody will have to remodel in 10 years.