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7 Tips for Buying a Fixer-Upper

So… you think the real estate market in San Francisco is a buyer’s market? Well, not just yet. But, you might be able to find a deal out there if you’re diligent and know your stuff.
For the record, I’m NOT telling you to go out there and start “flipping” houses. I don’t think that this is the market for “flipping.” There’s a whole lot of speculation about where the SF Market is heading (not to mention the national economy). And while I’m optimistic about the market, I’d be a fool to advise you to try to turn a quick profit in a market where appreciation is no longer at a rate of 10% or more a year.
But no matter what happens in the market, if you are looking for a home and you are on a budget, and don’t mind doing a bit of remodeling, taking advantage of someone else’s turn-offs and buying a basically sound house and then updating the cosmetics is a profitable thing to do in almost any market. But if you’re not careful about your purchase, it can bite you in the ass later when it comes time to sell.
Here are 7 things to ponder when selecting a fixer-upper:
1. PRICE: This is tough to do in SF… but the typical rule is that you should purchas a home that is at least 30 percent below the market value of comparable nearby homes.
2. LOCATION, LOCATION, LOCATION!: You can’t pick up a house and move it. Well, you can, but you might hurt your back. Ok, bad joke. But seriously, choose a location with a low crime rate, good schools, and quiet streets. There isn’t anything you can do to cure a poor location.
3. SIZE MATTERS: Get your mind out of the gutter. Smaller homes are tough to sell when the time comes. There isn’t much of a market for studio units or 1 bedroom condos or TIC’s. Aim for a 2 bedroom, but if you can afford a 3 bedroom, it will always pay off when you do sell someday.
4. KEEP YOUR EYE ON THE PRIZE: Stay away from homes needing major repairs – these include wiring, major plumbing, foundation repairs or a new roof. Spending money on these basics doesn’t add value and costs a hell of a lot.
5. THINK SMALL: Find a home that needs profitable cosmetic improvements like new cabinets (think IKEA or other inexpensive but off-the-shelf cabinets), fresh paint inside and out, new light fixtures, new carpets and flooring, and fresh landscaping.
6. KEEP IT LOCAL: Don’t buy a fixer-upper that is far from your current home because it is important to visit everyday while the renovation work is being done. And if you’re doing the work yourself, you’ll be grateful that you don’t have a long drive home day after day after day!
7. FIND THE REASON: Look for sellers who are motivated to sell and who want to make the sale happen. Your REALTOR® can help you to do your homework and find out the seller’s motivations.
And don’t expect to make a quick buck. Our market has been doing funny things unless you’ve got the “hot” house in the “hot” neighborhood. But if you buy a fixer, you not only get to make it your own, but your elbow-grease (or your cash if you’re not handy enough to do it yourself) will definitely help you grow your equity much faster than it would otherwise.