Buying a Fixer By Jim Palmer Jr.

For some reason buyers seem fascinated by real estate ads that promote dilapidated houses that need to be fixed up. Like a moth to a light bulb, we come running, attracted by the challenge perhaps, or by the lure of turning our elbow grease into gold nuggets! There is a certain amount of truth to the fact that an investor can purchase someone else’s problem, overcoming the obstacles because of added capitol (money, skill or labor) in order to turn the property into cash flow either by rental income or flipping the property to a new buyer.

Whether you are a first-time-buyer or an investor looking for an opportunity, there are a few things you should be aware of before you take on a fixer. Concerned by the possibility that innocent buyers could be scammed, Washington State legislators passed a bill (about 12 years ago) that makes it harder for someone who is inexperienced to repair a property and pass it on to the next buyer with subpar workmanship.

The law basically requires the investor owner to be a licensed contractor if they are performing the work themselves or to hire the work to be done by a licensed contractor (particularly on electrical items) or they could risk getting a fine. If there is even a slight possibility that there is lead based paint or asbestos present in the house that will be disturbed or removed by a remodel project, then the licensed contractor must also be certified for such removal.

Don’t forget that there may also be capital gains tax consequences that might dip into your potential profit! You should consult your accountant before starting a fixer/flipper project if you are an investor who will never occupy the home.

One underutilized tool that can be a real boon to first time home buyers who will actually occupy the home after they fix it up, is a little known FHA loan labeled “203K”. This loan is actually designed to help new home owners purchase a property that may not fit the strict standards for regular FHA loans. 

203K FHA loans allow minor repairs as well as major renovations after the initial closing of the property, even including the purchase of new appliances. The downside for an eager handyman is that the work must be bid and accomplished by a licensed contractor instead of allowing the owner to do the work themselves.

Past Articles

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