Fixer Uppers
Strategies for Rehabbing and Investing Fixer-Upper
By
Oct 28, 2005, 12:08

buy the worst house in the best neighborhood

If we buy a house to live in and work on over a period of tie, we now choose one that offers the most potential for appreciation by being in a prized or up-and-coming neighborhood. It might be an area of town that has a highly ranked school or a neighborhood known for its large lot and tree lined streets. It's the kind of place where people want to live because of an ambiance and character that sets it apart and makes it special.

In those neighborhoods we look for the orphan on the block, the neglected house waiting to be upgraded to the size of the other houses being transformed with additions and expansions. Ideally, the house is the smallest and least expensive on the block, so with improvements its value can only go up and become a plum property for a buyer who wants to live in that particular neighborhood.

Of courses, investing in real estate is not peachy and positive. The return on an investment, no matter what it is, reflects the amount of risk that is associated with that investment. Purchasing and fixing up houses is no exception. The game is simple to understand: if you can't make the mortgage payment the lender will come looking for its money and the property will be sold to cover the loan. As long as you pay the mortgage you get to keep the property. So the primary exposure you face is not being able to make the payment, which is the risk every home owner faces. As our property portfolio grew, so did the need for ready cash to keep the loan current.

today's investment climate is ripe for rehabbing

When we first started fixing up houses, the mortgage rates were above 6 percent. Today, some 30m years later, it's hard to believe that rates are substantially below the level and hit historic lows every day. A recent report, The State of the Nation's Housing: 2003,from Harvard university's Joint Center for Housing Studies, suggests a strong decade ahead for housing despite the lackluster economy. "Despite the 2001 recession and weak ensuing recovery, by most measures 2002 was the strongest year for housing on record. Residential investment, home sales, home ownership rates, and aggregate home and total mortgage debt all hit mew highs last year.," according to study.

We remain confident there will already be a market for a good house. You may decide you want concentrate on a specific type of property, build a portfolio of rental units, or invest in commercial property. Whatever your goals are, single-family residential real estate is a good place to start.

There is another perk that we've enjoyed in rehabbing houses, and we see it when drive by the houses we've owned and improved. We like seeing that the houses are being lived in and enjoyed by families. Some look exactly as they did when we left them; Others have been expanded and improved further. All of the houses have stood the test of time. And that little house near airport with the railroad track that almost runs through it - it's still as cute as a button. On our last drive-by we saw that the aluminum siding we installed still looks good, there 's a well used swing set in backyard, and the smoke that was coming out of the fireplace chimney tells us the family living three enjoys the fireplace as much as we did.