Fixer-Uppers

What to Know Before You Buy: Smart Renovation Investments, Risks, and Resources for Turning a Fixer Into a Dream Home

Are fixers a good idea in bad areas?

It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.

Many experts recommend that before you make such an investment, first find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget. If you are a novice buyer, it may be wiser to look for properties that only need cosmetic fixes rather than run-down houses that need major structural repairs.

Are there any special tax breaks for historic rehab?

Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or designated by an appropriate state or local historic district also certified by the government.

The tax code does not allow deductions for the demolition or significant alteration of a historic structure.

Resources:

• National Trust for Historic Preservation, 1785 Massachusetts Ave, NW, Washington, DC 20036-2117
  (202) 588-6000 • nationaltrust.org

Are there gov’t programs for rehab?

Yes. Several federal loan programs are designed to help with home rehabilitation:

• HUD Section 203(k) Rehabilitation Loan:
  For major rehab of homes with one to four units that are more than a year old. Can be used to buy and fix, or refinance and improve. Periodic payments are made during construction based on submitted plans and reviews.
• VA Home Loans:
  Veterans can use these loans to buy, build, improve, or refinance a home—often at lower interest rates than conventional loans. First step: apply for a Certificate of Eligibility.
• FHA Title 1 Loan Program:
  Allows homeowners to borrow up to a set amount for general improvements without needing equity in the home.

Resource:

• “Rehab a Home With HUD’s 203(k)” brochure – available from the U.S. Department of Housing and Urban Development.

How do building codes work?

Local governments establish building codes to ensure safety and structural integrity. They cover plumbing, electrical systems, fire safety, and more. Permits must be obtained before construction or remodeling begins, and housing inspectors conduct checks at key points.

If you’re buying a remodeled home, ask to see proof of permits. Unpermitted work can result in fines or issues when reselling the property.

What are some resources for info on home improvements?

A few useful guides and publications include:

• “Ready, Set, Build” – a consumer’s guide to home improvement planning, selecting contractors, and understanding contracts and rights.
  Available from Consumer Press/Women’s Publications, Inc.
  $9.95 • (954) 370-9153 • bookguest@aol.com
• Remodeling Magazine’s “Cost vs. Value Report” – offers yearly data on return on investment for various remodeling projects.
  Order by calling (717) 399-1900 ext. 146 or visit their online store.

What kind of return is there on remodeling jobs?

Remodeling improves both the livability and resale value of your home. Projects like kitchen and bath updates, home-office additions, and modern amenities typically yield the highest return.

For example, adding a home office could allow you to recoup around 58% of the cost, based on national data from Remodeling Magazine’s report.

Where are fixer-uppers found?

Fixer-uppers exist in nearly all communities, including upscale ones. A distressed property is typically defined by neglect or poor maintenance, and it sells for less than surrounding homes.

Smart buyers look for “cosmetic fixers” that can be upgraded with paint, fixtures, landscaping, and appliances—rather than homes needing foundation, electrical, or roofing overhauls.

The strategy: Buy the worst house in the best neighborhood—then budget to restore it to its potential value.