There are many ways to invest in real estate. One of the best short-term strategies is to buy a fixer-upper. A fixer-upper is a property that needs significant repairs or renovations, and such properties are typically at a lower price point than the houses around them.
The general idea is to buy a fixer-upper at a discount, invest in the repairs and renovations required, and then sell the property for a profit. Buying properties with the intent to fix and flip can be an excellent real estate investment strategy. However, finding good fixer-upper opportunities can be challenging.
The following are a few tactics that you can employ to search for and find fixer-uppers worth investing in.
1. Drive Around To Look For Available Properties
Simply driving around to find potential fixer-uppers is known as “driving for dollars.” Start by picking out a neighborhood and driving around it in search of distressed properties. You may find distressed properties that are already on the market ready for sale.
However, you may also find houses in need of repairs or renovations that aren’t for sale. You could speak with the owner of those properties (whether by knocking on their door, sending them a letter, or calling them) to find out if they might be interested in selling.
Driving for dollars is an excellent method for finding properties that aren’t listed; however, you must understand the real estate market in the neighborhood you’re exploring. You need to identify whether the investment is worthwhile and if there is a potential profit to be made.
2. Search Through The MLS Database
You can also search through the Multiple Listing Service (MLS) database to find fixer-uppers to add to your real estate investment portfolio. The MLS is a real estate listing service that brokers use to list properties for sale. It’s the official database for the U.S. housing market, which means you’ll find the majority of homes that are currently for sale on this site.
You can access this database online, or you can purchase software such as ZipRealty which provides an interface to peruse the MLS listings easily. It’s worth noting that not all properties for sale are listed on the MLS, especially those that aren’t represented by real estate agents. However, it’s still worth the time to look through it.
3. Hunt Through Bank And Lender Websites
Check out the websites of local banks and lenders. When a property is foreclosed on, it will be listed for sale or auction immediately. If there are foreclosures on any properties in your area, the banks and lenders may list them on their websites.
The lender will not invest any additional money into repairs or renovations since they want to recoup the balance of their loans as soon as possible. As such, looking through these websites is a great way to identify fixer-uppers to invest in.
4. Check Local Tax Records
You can visit the tax assessor website to identify homeowners that have failed to pay their taxes. This group of homeowners might be in a situation that requires them to sell their home. They could even be at risk of foreclosure if things are particularly bad.
Check out the properties owned by these homeowners to see if they are fixer-uppers. If they are, you could discuss with them the opportunity of selling.
5. Hire a Real Estate Agent
Hire a professional real estate agent to help you find fixer-uppers. The great benefit of hiring an experienced, professional real estate agent is that they’ll have access to information about fixer-uppers that may not be available on the MLS or through other means.
Real estate agents have extensive networks, so they may be working with sellers who have fixer-uppers for sale. They also tend to have relationships with other agents, which means that they can learn about fixer-uppers for sale before they are even listed.
In addition to helping you identify fixer-uppers, they will also be familiar with the neighborhoods you are looking in. As such, they can help you better identify fixer-uppers that may be profitable.
6. Look for Auctions
Look for fixer-uppers at auctions. If you are looking to find good deals on fixer-uppers, then attending local auctions is a great way to do that. Just be sure to understand what the real estate market is like in your area so you can determine whether or not it’s worth bidding on these fixer-upper opportunities.
It’s also important to understand that you may be bidding against other investors. You won’t want to get caught up in a bidding war only to find yourself paying more than you should have.
What To Consider In Finding Fixer Uppers
Investing in fixer-uppers can be very profitable; however, not all fixer-uppers are a good investment. There are a lot of different factors you’ll need to consider before deciding to invest in a fixer-upper.
The following are some of the crucial factors to keep in mind:
House Location
If the neighborhood is rundown or has a high incidence of crime, the odds are that property values in that area aren’t going to be high. You may want to consider the opportunity cost and the benefit of investing your time and money in repairing a property in an alternative location.
Research homes that have been listed in various areas over the past six months. It’s a good sign if houses sell quickly in an area, and at a higher price on average. Other location factors to consider include whether the house has any nearby amenities (such as stores or parks) or major roads and public transport (making it easily accessible).
The Potential Amidst The Disrepair
When considering a fixer-upper investment, the extent of disrepair matters. If the house is in such a state where it practically needs to be torn down and rebuilt, then it’s probably not worth the investment.
Conversely, if you can fix it up cheaply and sell it at asking price, you are more likely to make a comfortable profit. If the house needs some work but is structurally sound, then it’s probably fixable.
Even homes in need of significant renovations can generate a profit depending on the price tag. Identifying the potential in such a house is critical to your success as a fixer-upper investor.
You will need to determine what kind of repair work is required, how much it will cost you, how much you’ll need to invest in total, and what the property’s value could be upon completion, to determine if the investment is a good one or not.
Environment Around The Home
The location of the property matters a lot, but so does the actual environment surrounding the property.
For instance, if dead trees surround the property, they may need to be torn down. If the yard has been neglected, then you’ll need to invest in landscaping. If there is a slope to the property or surrounding area, it could cause regular flooding whenever it rains.
These are all things to look out for when inspecting the home’s environment as they may add to the cost of the renovation and adversely affect your profit margins.
Roof Leaks And Stained Ceilings
Always inspect the house for leaks in the attic and water stains on the ceiling. Such issues can indicate a much larger problem—that the roof needs to be replaced. Roof replacement can require a substantial investment, and you’ll want to carefully consider the potential costs to determine if such an investment is worth it.
Obsolete Kitchen
The kitchen is often the primary selling point of a house. These days, buyers look for kitchens that are convenient, comfortable, energy-efficient, spacious, multi-functional, and stylish. In an older, distressed home, a complete kitchen remodel may be required.
Consider whether new cabinets and counters would need to be installed and whether you should replace the existing appliances. A kitchen with an outdated look and older appliances is going to be a tough sell.
Old-Fashioned Bathroom
Bathrooms are important to buyers. A bathroom that is in bad shape or is simply outdated can repel potential buyers, even if the rest of the house is in good condition.
You’ll want to inspect the bathrooms to see how much work needs to be done. Do the fixtures need replacing? Is the aesthetic outdated? If a complete overhaul is necessary, then it may require extensive plumbing and electrical work as well. For example, if the existing pipes are made of lead, they will need to be replaced.
Can You Spot A Fixer-Upper With The Most Potential?
There’s a lot of potential when it comes to investing in fixer-uppers. However, it’s important to understand that not all distressed homes are good investment opportunities. Fixer-uppers are fixable; homes that should be torn down and rebuilt aren’t.
Consider all the elements of a fixer-upper carefully before investing your time, money, and effort. By knowing what to look for and how to look for it, you’ll have a greater chance of identifying fixer-uppers with the most potential.