Should i buy a gutted house

Next, subtract that from the home's likely market value after renovation, drawn from comparable real estate prices in the neighborhood. Then deduct at least another 5 to 10 percent for extras you decide to add, unforeseen problems and mishaps that have to be dealt with, and inflation. What's left should be your offer. It's essential that the real estate contract include an inspection clause. At best, the inspection will assure you that the house is a good investment; at worst, it will help you back out of the deal.

Often with fixer-uppers, it's something in between. The inspector will document a serious problem or two, and you can use the findings to get the seller to pay for repairs or negotiate the sale price downward. If the house needs significant structural improvements, many real estate experts recommend avoiding it altogether. That's because major repairs — plumbing and electrical system overhauls, foundation upgrades, and extensive roof and wall work — are usually "invisible" and hardly ever raise the value of the house enough to offset the cost of the renovation.

The ideal fixer-uppers are those that require mostly cosmetic improvements — paint touchups, drywall repairs, floor refinishing — which generally cost much less than what they return in market value. New lighting fixtures, doors, window shutters, and siding, as well as updated kitchens and bathrooms, are also lucrative improvements. Falling in between structural and cosmetic renovations are major additions needed to bring the house in line with its neighbors, such as a family room or third bedroom in a community of three-bedroom homes.

Such projects usually cost as much as or more than they return in market value the exception to this is adding a bathroom, which can be worth twice as much as its cost. Sometimes it's possible to fold cosmetic improvements into a structural repair to increase the value of a fixer-upper.

If you're replacing the roof, for example, you could add a skylight at the same time. Or you could install a bay window where there was dry rot in a wall. But you also don't want to overimprove: For maximum resale value, remodeling investments should not raise the value of your house more than 10 to 15 percent above the median sale price of other houses in your area, according to the National Association of Home Builders.

In places where housing costs have run up significantly and are approaching a peak, even buying a fixer-upper that seems reasonably priced may be too expensive. A large-scale renovation job can take many months, if not years, to complete, and if home prices fall or stay flat during that period, it's possible to come out at the end of the project with a house that's not nearly worth the investment.

Whatever renovation is required, it's usually most cost-effective when homeowners pitch in. Many of Semiao's clients can't afford a house in good condition in New Jersey's suburbs but "have the skills to hang cabinets, paint, spackle, install trim, build decks, replace windows, and even put on vinyl siding," he says.

If you're not the hands-on type, be prepared to devote a considerable amount of time — months or even years — to closely supervising contractors.

But remember that all of your financial gains could be wiped out if the project goes over budget because of mistakes or unnecessary delays. If I am not mistaking, I know the house you are talking about. It is further than guilford and that area gets tricky, for both rental and sales. Thanks Ozzy Sirimsi , I appreciate the feedback!

I agree the area isn't exactly the ideal spot that we're looking for in terms of prime rental opportunities, although I did like that it is very close to the more desirable neighborhoods. I also agree that the asking price of 75k is too high, on that same street there is a newly rehabbed house that was purchased for 50k and listed around k now I think we are going to continue looking for a more optimal deal but will keep our feelers out in the blocks a little closer to Hopkins.

Thanks again! First question to research Personally I would rather buy a "partially done" house where the drywall wasn't done yet etc, so I could see what evil lurks behind it vs one that is at that point where a lot of garbage could be hidden from view. Just keep in mind that an appraiser typically can't count basement sqf and thus spending a lot of money downstairs might up your incoming rent, but might not add value if you refi.

If you signed up for BiggerPockets via Facebook, you can log in with just one click! Log in with Facebook. Full Name Use your real name. Password Use at least 8 characters. Using a phrase of random words like: paper Dog team blue is secure and easy to remember. All All. Menu Menu. Recommended Vendors. Real Estate Books. Featured Book. Get the Magazine. Within certain boundaries a neighborhood, for instance , a real estate agent or anyone else who has been going to open houses and following recent sales can probably tell you what a "typical" home of a certain size will sell for.

This may have little to do with the amount the seller listed it for. Websites such as Zillow and RealEstateabc will even give you recent sales prices and rough very rough estimates of value for a particular home. Using both professional opinions and recent records of sale prices, any homebuyer should be able to come up with a " comp " comparable value for a home. But most homes on the market are not fixer uppers. Any theoretical comp value that arrive at won't really apply to a house in which, say, the floor around the toilet has a hole through which you can view the basement, the roof is a patchwork of old and loose shingles, and the linoleum is peeling badly.

That doesn't mean you shouldn't look at comp values for homes with the same basic parameters—in the same neighborhood, with the same square footage, having the same number of rooms, and on the same-sized lot. In fact, this figure will be an important starting point in figuring out how much to offer. To set a logical home price for the fixer-upper in which you're interested, you'd want to start by figuring out the value of the home if it didn't need work, then subtracting the cost of the needed work.

We discussed arriving at the first figure already. Now let's look at how to calculate the cost of repairs. Time to bring in the experts. Unless you are a contractor, engineer, or in some related specialty, it can be almost impossible to calculate how much the repairs and renovations on a house will cost. Hidden problems such as dry rot, pests, and an inadequate foundation can add tens of thousands of dollars to the total.

In some cases, the cost of work might be so high that razing the structure to the ground and starting over will make more sense. You'll want to hire, at a minimum, a home inspector and a licensed general contractor to tell you what needs doing and how much you'll be charged. That will get you close to the figure you'll subtract from the home's "normal" market value in order to reach the maximum price you should offer.

But first, you'll want to make some adjustments to that figure. The amount you'll owe the contractor for labor, materials, and permits is not the end of the story. To the extent possible, you'll want to add in:. Interest on any loans you might take out with which to pay for the work. Particularly if you're planning to put any of this on a credit card, you could end up owing significant sums on top of the basic figure.

The good news on this is that the interest on a home equity loan used for home improvements is, in most cases, tax deductible. Extra expenses if you will be living in the home but unable to use portions of it, such as the kitchen or laundry area thus leading to restaurant and laundromat bills.