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Fixer-Uppers: What To Fix

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Are you thinking about buying a house to fix up and sell? Be careful to
fix the right things.

fixer-uppers,houses,house,real estate,real estate investment,fixer upper

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You've bought a house, a fixer-upper you can make some money on. What
improvements and repairs should you make? First of all, you need to know
this before you buy, as I explained in another article. Before and after
you buy, though, you need to have some simple rules with which to start
analyzing possible fixes.

Return On Investment

A young couple was very disappointed when I told them there house was
worth $110,000. "We just put $40,000 into remodeling the kitchen!" they
told me. I looked at the kitchen. It was nice. They had added $10,000 in
value to the house by spending $40,000. This is a classic example of a
bad return on investment.

With fixer-uppers, you have do things which give the most "bang for the
buck." Aim for a three-to-one return on improvements. If you're going to
resurface the driveway for $1000, it better raise the value of the home
by $3,000. Even when you're just guessing, keep this three-to-one formula
in your head, if you want to invest safely.

How To Fix A Fixer-Upper

With things like new curtains, you can't really estimate the increase in
value. What you can do, though, is group together the many small repairs
and improvements you are considering, and imagine how the house will look
when you are done. Then you can estimate whether you will have increased
the value enough to justify the cost.

It often is in the small details that you'll get the best return on
investment, so look at these first. A new mailbox, flowers on the porch,
a raked yard and trimmed trees - $30 total if you do the work yourself -
can make a big difference in the first impression potential buyers have.
First impressions are important.

Other small investments that pay big include shiny new switch covers
(less than $1 each), shelves, a birdhouse, new doorknobs, new light
fixtures, curtains, new rocks or wood chips on outdoor paths, new
faucets, new woodstain on decks, and general cleaning. Stand in front of
the house and imagine what it might look like with various small
improvements (flowers, wood-rail fence, birdbath, etc.).

The Big Fixes

Obviously, there are things that just have to be repaired. The basic
systems must function. Improvements, though, should be subject to the
three-to-one rule. You may have to get creative here. An investor friend
of mine once had a wall put up, and for less than $1000 created a new
bedroom, probably raising the value of the house by $8,000. Now that's a
good return on investment.

Bathrooms and kitchens are important. A $1000 updating of a bathroom can
add $4000 in value to a home. Spend $2000 wisely in the kitchen (New
fridge, re-finish the cupboards, add a garbage disposal, etc.), and you
can add $8000 to the sales price of the house. Look for changes which are
most universally valued (don't paint the kitchen pink because YOU like
that color), and be sure you get a decent return on investment.

Depending on the fixer-upper, there are many potential improvements that
can be worth doing. These include adding a carport, new doors, fences,
gazebos, sheds, painting, carpet, benches, a new closet, a new toilet, a
new stove, a shower/tub surround, and trees or bushes. The bottom line is
the bottom line: be sure anything you do returns more than you spend,
preferably three times as much.

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