Wednesday, March 26, 2008 

On Monday, I wrote about how the reality TV show, Flip This House, on A&E, got me thinking about fixer-upper homes and the potential they have to bring real anguish to the lives of people who buy them looking to get rich as real estate “flippers.” 

Of course, savvy fixers and flippers can make money doing it, but it takes discipline and a few important tricks.  On Wednesday I offered two sets of do’s and don’ts.  Here are two more: 

Don’t: Focus only on “bad” neighborhoods 

It can be tempting to focus only on run-down neighborhoods when you’re shopping for fixer-uppers.  Sure, you’ll probably find lots of fixer-uppers in those neighborhoods, but will you be able to resell your fixed up house for a healthy profit?  Remember location, location, location – make sure to check out the sales prices of nearby homes to see what your profit might be. 

Do: Take stock of the overall sale-ability of the home  

When you’re looking for a fixer-upper, think about the overall sale-ability of the home.  Is it in a neighborhood that people want to live in?  Have homes been selling well in the area recently?  Are there nearby amenities, like schools, parks, and shopping centers? 

As a kid, I loved shopping at flea markets.  It was a thrill buying cool stuff for so little money!  I’d spend my whole allowance on what I thought was a real steal.  Then I’d play with it once and it would break.  I finally learned that just because something is cheap doesn’t mean it’s a good deal. 

If the home you’re looking at is an area where people want to live, then you’re likely to be able to sell it.  If not, no matter how cheap it is, it may end up burning a hole in your pocket. 

Don’t: Rush into turning a single-family home into a multi-family property without doing your homework 

Taking a single family home and renovating it to re-sell as multi-family units can be a good way to make a healthy profit.  Or it can be a way to lose a lot of money and get yourself ensnared in some real legal trouble.  To get the first, and not the second. . .  

Do: Investigate zoning laws and HOA rules to make sure multi-family properties are allowed 

City zoning laws dictate where multi-family properties can be, and where they can’t.  They also dictate a myriad of other rules for multi-family properties – hire a good real estate lawyer to walk you through those rules to make sure you stay within the law. 

Also, check out the neighborhood’s HOA.  Most HOAs will not allow conversions to multi-family homes.  Again, HOA rules are legally binding, so seek the help of a lawyer to keep yourself out of hot water. 

In addition to the potential legal ramifications of a multi-family conversion, there are all sorts of renovation-related issues, too.  For example, if you’re converting a single-family home to multi-family units, you’ll most likely need to add more kitchens.  Hook-ups for sinks, dishwashers, stoves and refrigerators can get expensive.  You may need to add more bathrooms, too.  You might also have to construct new entrances and block off old access ways.  Seek professional help to make sure you stay within the city’s building and fire codes when you’re renovating. 

Buying a fixer-upper is kind of like treasure hunting at garage sales.  I heard of a lady once who bought a Monet at a garage sale for $50.  I’m not sure if it’s true, but the point is a good one: some people don’t know what they have, and are willing to sell it for a bargain.  When you find that kind of a deal, the profit potential is enormous. 

Other times, sellers are willing to cut a deal just because they need to sell in a hurry.  Again, if you’re in the right place at the right time, you can do well fixing and flipping. 

But the key is to be patient.  Don’t buy into the idea of fixing and flipping just because you heard of some guy who got rich that way.  Either he was very lucky (and luck always runs out) or he has a patient, business-savvy approach to buying fixer-upper homes.