Fixing Houses in a Down Market
In my last post I was examining the profitability of buying a house in need of fix up to illustrate how major repair just isn't feasible in a falling market unless a house can be bought for truly rock bottom prices.
In the foregoing illustration, a house was bought for $75,000 and sold for $115,000 in six months for a meager profit.
how could this be made more profitable? First of all, I try to look at houses from the perspective of their cost per square foot, with not value allocated to the land they sit on.
If a house is a "fixer", I want to be able to sell it for $70,000 per square foot after all costs in a market where competing MLS houses are priced at $100,000.
This means that a 1500 square foot house would be priced at $105,000 net to me.
This guarantees a quick sale and easy loan approval.
With that in mind, I don't want to pay more than $40 per square foot to buy such a house, and no more than $5 per square foot to fix it up.
Thus, on a 1500 square foot fixer upper, that limits my cash purchase price to about $60,000 and my fix up costs to about $7,500.
Fix-up might include interior and exterior patching and painting, new front door and hardware, a new garage door, upgraded bathroom fixtures, new kitchen sink and laminate countertops, appliances, new switch and wall plates, mini-blinds, and carpeting.
The carpeting would go in last, but many of the other jobs could be done at the same time by different workmen.
Fix-up would not include new kitchen cabinets, new roofs, extensive plumbing, new windows, or major electrical work.
If I have all my ducks in a row, with labor and materials on hand and a set schedule, I would expect to be able to complete my fix up in about a week or ten days, and to have the house back on the market as the carpeting was being installed and final punch list items completed.
After being fixed up, this house will be a bargain compared to other hosues on the market and will sell much faster; perhaps in one month.
Figuring about 4 months to sell and close the house at the outside, I would expect the fair market selling price to deteriorate about $10,000 - if I were selling at full retail, or $100 per square foot.
But I'm selling at $70 per square foot, or for $105,000 net to me after all costs.
I should be able to get this price even as the market falls.
So what's the big deal if I'm going to wind up with the same amount of money as in the previous post? First, I was able to shorten up the time by a full month, or 3% less drop in price.
Second, I only paid $67,500 for the fixed up house and netted about $37,500 in four months instead of six.
If I could do this 3 times a year, I'd make over $100,000 instead of $20,000.
Next post, I'll explain how I could make more money by doing neither of the foregoing fixer upper deals.
In the foregoing illustration, a house was bought for $75,000 and sold for $115,000 in six months for a meager profit.
how could this be made more profitable? First of all, I try to look at houses from the perspective of their cost per square foot, with not value allocated to the land they sit on.
If a house is a "fixer", I want to be able to sell it for $70,000 per square foot after all costs in a market where competing MLS houses are priced at $100,000.
This means that a 1500 square foot house would be priced at $105,000 net to me.
This guarantees a quick sale and easy loan approval.
With that in mind, I don't want to pay more than $40 per square foot to buy such a house, and no more than $5 per square foot to fix it up.
Thus, on a 1500 square foot fixer upper, that limits my cash purchase price to about $60,000 and my fix up costs to about $7,500.
Fix-up might include interior and exterior patching and painting, new front door and hardware, a new garage door, upgraded bathroom fixtures, new kitchen sink and laminate countertops, appliances, new switch and wall plates, mini-blinds, and carpeting.
The carpeting would go in last, but many of the other jobs could be done at the same time by different workmen.
Fix-up would not include new kitchen cabinets, new roofs, extensive plumbing, new windows, or major electrical work.
If I have all my ducks in a row, with labor and materials on hand and a set schedule, I would expect to be able to complete my fix up in about a week or ten days, and to have the house back on the market as the carpeting was being installed and final punch list items completed.
After being fixed up, this house will be a bargain compared to other hosues on the market and will sell much faster; perhaps in one month.
Figuring about 4 months to sell and close the house at the outside, I would expect the fair market selling price to deteriorate about $10,000 - if I were selling at full retail, or $100 per square foot.
But I'm selling at $70 per square foot, or for $105,000 net to me after all costs.
I should be able to get this price even as the market falls.
So what's the big deal if I'm going to wind up with the same amount of money as in the previous post? First, I was able to shorten up the time by a full month, or 3% less drop in price.
Second, I only paid $67,500 for the fixed up house and netted about $37,500 in four months instead of six.
If I could do this 3 times a year, I'd make over $100,000 instead of $20,000.
Next post, I'll explain how I could make more money by doing neither of the foregoing fixer upper deals.
Source...