Re: real estate turnover info - Posted by Ronald * Starr(in no CA)
Posted by Ronald * Starr(in no CA) on January 25, 2002 at 21:28:54:
Ok, I see more of where you are coming from.
Not everybody is comfortable living in a property which is in a constant state of disarray and repair. I suggest you be careful and try to really choose wisely if you will or will not be comfortable with this. My cousin and her husband lived that way when they were young, fixing the house up all the time. But not everybody likes it.
If you are planning to live in a house for less than about 5 years, it is usually not a good idea to buy it. It is better to rent. The transaction costs–closing costs–make it economically a poor choice to own for a short period of time–usually. Now, there are exceptions: if the real estate market is extremely hot and appreciating, or if one can force appreciation into a property, such as by fixing it up.
The typical young couple, in buying a fixer-upper home for themselves overpay and thus they do not make much profit, especially give the large amount of work they put into the project. Maybe this typical experience is what your advisors are talking about.
To make money with a rehab project, you have to buy drastically low of market value. Usually this means not buying properties spotlighted on the MLS. Usually finding a good deal involves getting out and beating the bushes in the dark corners of the market ignored by the real estate professionals. This takes time and it takes knowledge. Acquiring the knowledge to do this successfully takes time. So, one does pay something for the bargain one buys. If you are good at finding bargains and negotiating purchases, you might be successful at it.
Please realize that in most locales fewer than 1% of the properties in the retail marketplace–the MLS–are great deals. Real estate agents will tout properties as fine buys because they are at 5% or 10% below the typical selling price of similar properties. Is is usually foolish to pay such high prices when you are looking for a good deal. Only buy if you can get a property for at least 20% below market value. It is difficult to do. And this is after taking away from the retail price the cost of fixing the property up to retail market condition. This is what most young people miss–they do not deduct enough for the repair costs. Just spend an hour or two pricing materials at a place like Lowe’s or Home Depot: boards, hardware, plumbing parts, windows, doors, etc. Even some larger bolts can cost more than a dollar each. Go into this with your eyes wide open.
If you have fix-up experience that will stand you in good stead. If not, expect to learn a lot and find yourself struggling to make a nice house and a profit at the same time. You will be reading a lot of books on fixing things. You won’t have much time to watch TV except maybe for “This Old House” and “Hometime.”
Good Investing and Good House-huntingRon Starr*****