Every community has an abundant supply of fixer-upper houses, and in this column we’ll discuss the major sources of these profitable homes:
1. REAL ESTATE AGENTS AND THE LOCAL MULTIPLE LISTING SERVICE (MLS). The most obvious source of “fixers” is the local MLS and the local real estate agents who have houses listed for sale. Over the years, I probably bought at least 50 percent of my fix-up rental houses through this source. Of course, I didn’t pay the full asking prices!
Purchase Bob Bruss reports online.
Fixer houses are the most difficult for realty agents to sell. If they have tenant occupants, they can become almost impossible to sell. Competition from other home buyers for these “fixers” is usually minimal because most prospective buyers want to buy a house in tip-top condition and they won’t even consider purchasing a house needing immediate work.
As we enter a “normal” home sales market, due to slowing rising mortgage interest rates, I think many motivated sellers of fix-up houses will become very reasonable about negotiating discounts to compensate for the drawbacks of their homes.
2. FORECLOSURES. In many communities, the number of homes in the foreclosure process is slowly increasing. This is due to many causes, such as a slow economy in some towns, rising mortgage interest rates, personal problems of homeowners, and the huge numbers of adjustable-rate mortgages issue in the last few years to marginally qualified home buyers.
3. PROBATE AND BANKRUPTCY PROPERTIES. Closely related to foreclosures, probate and bankruptcy properties are often bargain fixer-uppers. But there is usually little buyer demand for these properties because they can be more difficult to purchase.
For this reason, these off-beat properties frequently sell at bargain below-market prices. Each probate and bankruptcy situation is unique. If you can be patient, you can pick up an incredible bargain.
4. VACATION AND SECOND HOMES. There are millions of vacation or second homes that do not qualify for the $250,000/$500,000 principal residence sale tax exemption. The obvious reason is the owners don’t spend enough time living in these non-primary residences. However, with some skillful tax planning, these secondary homes can qualify for the generous tax exemption of IRC 121.
Lots of vacation and second homes can profit from “fixing up” before sale. Today, few buyers of second or vacation homes want their rustic atmosphere without the modern amenities, especially up-to-date kitchens and bathrooms. The same fix-up cosmetic rules apply to secondary homes, using the same “look for the right things wrong” formula. Incidentally, only one spouse must meet the ownership and occupancy test — this can be especially useful to shelter up to $250,000 capital gains profits. However, if both spouses meet the 24-month occupancy test, then up to $500,000 tax-free principal residence sale profits are exempt from taxation.
(For more information on Bob Bruss publications, visit his
Real Estate Center).