With all the TV shows that talk about fixing and flipping houses, I am frequently asked about buying fixers. We call them flixers. After a few questions we usually discover that what the buyer wants is something that needs paint and carpet. Well, that is not really a fixer-upper; it just needs paint and carpet.
Money is made on homes that have difficulty selling because of their conditions. This type of home needs capital improvements and sometimes the buyer has difficulty getting a loan. This is where the money is made: if the seller cannot sell it to a homeowner because of its condition and the financing requirements, then only an investor can buy it. This requires capital and know-how.
The other myth has to do with bank foreclosures. Although good deals can be found, the pricing of bank foreclosures is primarily driven by the market. Uninformed buyers believe they can make offers of 50-60 cents on the dollar but this is simply not true. Banks will typically get an estimate of value based on a 30 day sale and then adjust the price about 3% every 30 days till it sells. The bank is trying get as much money as possible and will ride it down.
I remember a couple I worked with years ago. Dave and Kelli wanted to buy a house that needed a lot of work. I mean a LOT of work. I told them as their agent I had no problem if they were to buy the house. However I made them get estimates on the work and draw up a plan and a budget of how they were going to do it. They called about 3 days later, said thanks for making them do the exercise and they had decided to not buy it. Instead they opted for a nice, clean little estate sale that was decoratively challenged and in about 5 years their equity increased by about $75,000.
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