Flipping houses is an area of real estate investing that isn't for the faint of heart, but if you go about it the right way, it can really make you a lot of money. But finding the perfect fixer-upper can be a challenge. Here, we'll talk about how to find a fixer-upper and what to look for when buying one of these properties.
What is a fixer-upper?
A fixer-upper is a home that's in serious need of repairs. Sometimes, a fixer-upper can have more cosmetic issues than structural ones, but generally speaking, the home will look like it's in bad shape at first glance. Typically, a fixer-upper house can be purchased at a lower price than a home in better shape. Some neighborhoods are loaded with fixer-upper homes, but often, you'll find a random fixer-upper in an otherwise nice neighborhood.
How to find a fixer-upper
There are several avenues you can explore to find a fixer-upper. Here are the best options.
Drive around and look
Sometimes, a real estate agent will call out a fixer-upper in a listing, but often, the best way to find fixer-uppers is to drive around different neighborhoods looking for them. If you see a home with a neglected exterior -- an overgrown lawn, a crumbling fence, or dirty, warped siding -- then chances are, the inside of that home is in similarly bad shape.
Search the multiple listing service
Homes that are labeled as short sales or real estate-owned are generally properties in poor shape. You can also search for homes that have been on the market for several months in otherwise hot neighborhoods without a buyer. And, as mentioned earlier, sometimes a real estate agent will come clean in a listing and indicate that an available home needs work. Another clue? If you spot an underpriced home, there's a good chance it's being offered at a discount due to the shape it's in.
Go to foreclosure auctions
Foreclosure auctions let you buy distressed homes at a discount. There's just one drawback -- often, you'll need to pay for a foreclosed home in cash, and you won't have an opportunity to see the home first to determine just how terrible it actually looks. Be careful when going this route.
Check local tax records
Delinquent property taxes are generally a matter of public record, so once you narrow down a target area to invest in, you can visit that town's municipal website to get information on homes whose tax bills have not been paid. While an overdue tax bill isn't automatically a sign that a house is a fixer-upper, it is a sign that its owners are having financial difficulties, which implies that there may be issues with the home itself.
Work with a real estate agent who specializes in fixer-uppers
Some real estate agents work directly with house flippers and specifically aim to source homes that are in disarray. Contracting with one of these agents could make it easier to find a fixer-upper.
What sort of fixer-upper should you buy?
A fixer-upper can be a true money pit, or it can be a fairly easy remodel. How can you tell how much money you'll end up sinking into a fixer-upper?
The best way is to make a list of what's wrong with each given home you're interested in and attempt to price out those renovations. As a general rule, your renovation costs will be much lower when they're mostly cosmetic improvements. But if you're buying a home with serious structural damage, a busted roof, and a heating system that hasn't worked since 2002, then you may be in for quite the hefty bill. Before you buy a fixer-upper, figure out how much money you can afford to spend on a remodel, and set a budget so you don't wind up putting out too much cash.
Finally, if you're going to buy a fixer-upper property, make sure it's priced right given your anticipated remodeling expenses. If you're looking at a home with a major renovation that's likely to cost $300,000, and the average property in that neighborhood sells for $500,000, then you'll want to spend well under $200,000 for that house to ensure you're able to not only find a homebuyer but also turn a profit.
A fixer-upper could end up being a great investment property -- but make sure you know what you're getting into before committing to buy.