Midwest Minute - January 15, 2012

Questions To Ask Before Buying a “Fixer-Upper”

I can’t watch renovation reality shows on television.  For one thing, we see more disastrous retrofits than successful ones in our business.  Don’t take me wrong, I think there are always opportunities in the market to earn decent payback by tackling the right properties.  But that’s just it; you need to be sure it is a project that makes sense. 

The first step is to be honest with yourself about what skills you possess, and how much time you will actually have to devote.  Unlike many of the TV shows, very few of us have access to a professional coach that can guide us every step of the way.   Some tasks, for example painting, are relatively simple if undertaken in a methodical manner.  Others, like electrical, can be downright dangerous to both you and a future resident if not finished to code.

The second step is to have a friendly chat with your banker about purchase limitations, progress draws, and their expectations respecting repayment terms.  Don’t forget to factor in legal fees, title and mortgage registrations, inspections, and most importantly, the cost of financing until resale.  If you plan to purchase a dwelling for rental purposes, then you will also need to put a budget that addresses all the expenses that will be associated with carrying it in the longer term.

Ask your Realtor to undertake an initial search for candidate properties that meet your specifications, then to watch for new listings as they come on to the market.  In my experience, the best deals often get snapped up before any substantial advertising takes place.  Opportunity always finds people who are ready to buy.

When making the offer I recommend asking that it be subject to both achieving financing and practical period of time in which to conduct further diligence.  This may include an independent appraisal for current value as well as estimated value after proposed renovations have taken place, as well as a very close look by professionals at the integrity of the structure and every mechanical system.  Simply don’t buy a house with bad “bones”, it is rarely ever worth it.

Make a list of the repairs that need to take place in order to establish an acceptable cost for the project. If you have a good working relationship with an experienced contractor, hire them to do a walk through with you.  Develop a detailed inventory of tasks that will be performed then proceed to price labour, permits, and supplies.   Add at least another 20% because I haven’t seen a refresh project yet that didn’t encounter something that was unanticipated at the beginning.

Most importantly, don’t put any unnecessary pressure on yourself or others who may be assisting.  Fix and flip, or fix and rent projects can be very satisfying if completed properly. You are taking a tired building and making it useful again.  Done right, the family that gets to live in it next will be excited to have it as their home.  Like most things in real estate, it’s not how quickly you start; it’s how well you finish.  Have fun!

Vern McClelland is an associate broker with RE/MAX of Lloydminster and a partner with The Midwest Group.  If you have questions or comments on this article or other real estate matters, he can be reached at 780.808.2700, or through the website www.wesellmidwest.ca

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