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Buying The Worst Shack In A High Value Neighborhood

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Real Estate Investment BasicsIs It Work Putting In A Bid And Doing The Work?

Choosing to invest in a fixer upper in a nice neighborhood may seem like a case of following your heart but it is in fact a math problem. You are going to want to spend less than the full market price and then put in some cash, construction loans or really, really hard work. Of course you will get the biggest discounts by using the best available combination of all of these.

Although construction and rehab prices will vary the real deciding factor is the variation in the price of land, which varies dramatically across the country. The more crowded areas and those that have the best weather may be pricier than the rest. Also the amount of money that is poured into an industry in a region can make a difference. This is evident in the so-called sunshine tax of Southern California, the tech driven super-high prices of San Francisco and the expensive urban centrality of Cities like New York or Miami.

Rehabilitation Heroics

The thing about buying the most run-down home in a neighborhood and improving it is that, even if the fact remains unspoken, you immediately become a community hero. There is serious automatic goodwill for you when you take on the local eyesore. Homeowners in a community are painfully aware of the run down foreclosures and derelict houses that are dragging down the character and value of their own homes.

In fact, if no other option emerges, some owners will form syndicates to rehabilitate blighted properties, if it will make a critical difference in the future prospects of their own homes. Abandoned houses attract wildlife and sinister uses by elements such as drug users and such. You will be doing the existing homeowners of your new community a huge favor to put in the work and the equity. It’s an investment that they are dreading to make themselves.

Doing The Fixer Upper Math

How do you price it? First, determine a conservative estimate of the likely full market value. At this point professional investors and house flippers will knock off around twenty percent as a profit margin that they want to make. For you as a private buyer, this discount is likely going to make getting in with hard work worthwhile.

Second, determine the cost of getting the property to full market value. This should be estimated on the high side to allow for hidden defects and unforeseen problems. You will be looking at a list of problems, and the materials and labor to put them right. Don’t forget the cost of professional fees and any cost of short-term borrowing. Then, subtract that from the full value. This will give you the price range in which to bid. If it turns out to be something that you can afford, work with your realtor to negotiate a deal.

Hard Work Might Just Pay Off

At the end of the day it’s about making your own personal dream affordable. That might mean getting you ensconced in the perfect neighborhood at a discount. If that is what works for you to create a happy home there is no reason to argue. The essential point is to be happy and cut some corners so that you can do it within your budget.

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Trace Richardson has written 638 articles on BankChirp.com

I'm Trace Richardson and am the founder of LeadPress. I’m a licensed California Real Estate broker and a former equities trader previously holding the Series 7, 63, 55 and 24 securities licenses.

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