I am thinking about getting "Handyman" type houses and renovating them and then reselling for profit. Has anyone done this before? Any advice? Is it even possible with todays high real estate prices?

-- TomK(mich) (tjk@cac.net), December 03, 2001

Answers

A friend of mine does this in NYC and does quite well at it. She buys and lives in each house as she works on it,thereby never having to have her own house as well as the fixer upper. It can be quite primitive when she is first starting in, too,not something I'd want to do. As far as prices being high, well, the mortgages are low, and if you choose your property carefully that sure helps.

My friend's best advice is never put more than absolutely necessary into a property. Fix it up, but don't fancy it up. Fancy is time and money that you won't get back.

-- Jennifer L. (Northern NYS) (jlance@nospammail.com), December 03, 2001.

Well, Are you a handyman? Do you have a fairly flexable amount of money to throw at the project? Do you have money to purchase the homes in the first place.

Depending on the quality of the home and asking price, you may or may not be able to get a loan. If its in a reviatlization district then its easier, but usually you have to show you can afford to do it and agree to stay in the home several years.

Your going to have to have some flexable money to buy materials and to contract out what you cant do. NOTE!!!! You will have to contract out something. What I dont know but you will.

Its a lot harder to do work than This old house makes it out to be. You need a good set of tools and materials to start these take money.

You might find a great house for the right price, put some money into it and NOT!! be able to sell it for a profit. Can you afford that?

BTW, Did I mention you need money?

Granted you can move into a delapidated old house, fix a few things and resell it to someone else with the handyman dream, but then again you may not.

I purchased a house that needed some work but was very livable when we moved it. It will takes years to make it what my wife wants it to be, but we can afford to wait.

-- gary (gws@columbus.rr.com), December 03, 2001.

Hi Tom, I'd be careful getting into that at this point. Real estate is probably the next bubble to burst. Bankruptcies and foreclosures are rising, and real estate prices are starting to fall. You could buy at the top of the market and not get your money back, maybe not even be able to sell. Study the markets carefully first.

-- Deb (andersland@webound.com), December 03, 2001.

Been there done that. Me and the wife bought and fixed up 13 houses in the past. Never buy in a bad or getting bad location. If a neighborhood is starting down there is no way to quickly reverse a downhill trend. We found that you will have problems borrowing money against a fixer upper. Lenders will only lend what it is worth now not next year. We started out by borrowing money on our home with a line of credit and using it to purchase the houses buy the material needed to do the job and when finished the house would be clear of debt and would morgage it to finance the next. Forget the no money down, refinance and put money in your pocket thats bull. You really don't want most of the houses that are for sell no money down, if they were worth what they are asking they would want a down payment. Also refinancing property and puting money in your pocket is a myth. Banks want their money back with interest, you try this and you are on the road to financial ruin. You will have to have good quality tools. We did all the work ourselves, if you pay someone the profit why spend your time. According to our tax papers we had over 30,000 dollars in tools and equipment. You will need a tax accountant to show you how to handle the tax problems. Finally we sold all our houses in 1999. Three we owner financed the others we sold and the buyers found their own financing. The houses were all in middle class neighborhoods or out here in the country where we live. No bad neighborhoods all had central air and heat at least 3 bedrooms. In fact the house we call home was the smallest of all and we don't have any airconditooning. After working on the houses for years, finally sold them and then found out we owed almost 44 cents on every dollar we made. Now don't get cute and decide you can avoid this. Lots of people are in jail thinking that way. The price you paid and the price you sell for is public record, pay the taxes. Moral of the story wish we had spent the eight years watching soaps on T.V. Was a learning experence but the money is just not there for the work and the risk involved. Now the laws are tighter the codes are stricter and lots of things you can not do your self. Try to get around the codes and the fines and all are really bad. You build or repair without a permit you will be fined and probably have to tear it down and that is sure no fun. If I can help answer further questions please email David

-- David (bluewaterfarm@mindspring.com), December 03, 2001.

Well yep done it a time or two. Don't recommend it. If real estate is your passion, then buy in good to great neighborhoods. Look for houses that need a little outer upkeep preferably 25+ % discounted.

I have some other idea's not main streamed. email if interested.

-- Kenneth in N.C. (wizardsplace13@hotmail.com), December 03, 2001.

I'm not sure this works as a business, but it is pretty good as a lifestyle. We bought a house on the outskirts of Cincinnati that needed work. Lived there 6 years, and sold last year for about a good profit. Since we lived in the house there were no taxes to pay. We did it for the fun, not the money (fixing old houses is my hobby) but it is nice to get a little something at the other end.

That was the fourth house I have fixed up and sold. Bought two houses when we lived in Michigan, fixed those up and rented them profitably for five years, and when house prices had risen sold them (in '99). This is a pretty good arrangement - if housing market tanks, rentals usually do well and you wait to sell. Capital gains taxes are 25% of gain, not the 44% somebody mentioned. We had to pay those but got positive cash flow while renting so did pretty well out of the whole deal.

I agree, you have to do most all the work yourself to make anything. But house prices are not all that high right now - especially when you figure the cost of carrying a loan at today's interest rates. I still see lots of bargains. Yes, it helps to have skills but we learned as we went and taught ourselves (how hard can it be, ask yourself). And we have only simple tools, nothing fancy.

-- Scott McAlpine (scottmcalpine@juno.com), December 03, 2001.

My 2 cents: do the handy man work on SOMEONE elses house- youll make better money. My parents tried this approach, only they fixed up then rented middle income housing. I helped out on a few. They "make" about 50 dollars a month per house on 3 houses with gobs of potential loss if a renter destroyes the place or flunks out. Same situation with handy man buyer- unless you are skilled at surveying and estimating, you will loose money the first couple of times by underestimating the costs. Case in point: I went on a trip with my parents to scout out a couple of houses they planned to buy. The first two were nice. The third was recently rentovated, all new sinks and showers and drywall. I looked the place over for a couple minutes then went outside to look around. The house had- which is rather rare here in NC, a basement. on wall of the basement (acessable from outside only) looked a bit out of wack. No... it looked REALLY out of wack. Next to the tilted wall were 3 4 by 4 posts- obviously new, that were attached to a 2X6 spanning the floor joists. The 4 by 4s were set not under the joist but beside them- the 2 by 6 was bowed 2 to 3 inches in places... the whole darn house was sitting on it! An oak trees roots were the cause- they had pushed the wall in on itself. I hurried outside to get my dad... he was shaking hands with the realitor (not a good sign!!). I told him and mom to go get in the truck and forget this place. We went, they never even got to see the horrendous job the renotovaters had done... I didnt feel safe in that basement, thats for sure! The next house was a similar experience- the renotvater had failed (duh) to put tarpaper under the brand new shingles and the house was for sale as is- the only condition the house could be sold, and the miossing tarpaper was divulged during closing, which my folks backed out of when the owner refused to lower the price to correct the situation. The house would not have been able to be rented without the tarpaper- building codes and such.

-- Kevin in NC (vantravlrs@aol.com), December 03, 2001.

Scott, capital gains are taxed on a scale so 44% was feasable back at that time. Top tier is a bit less now but still considerably more than 25%. Just wanted to point that out since you disputed what another poster had said. When you give the IRS over 1/3 of your gains you remember it well.

-- Dave (something@somewhere.com), December 04, 2001.

Dave, sorry if you thought I was questioning the 44% rate. No doubt this applied at one time - but not very useful info for the questioner at present. He would like to know about now, and I was trying to give current info.

Actually the long-term capital gains rate is 20%. The 25% I quoted is for recapture of depreciation, which is mostly what I paid having owned and depreciated my Michigan houses over several years. Most people are surprised how low capital gains taxes are now. When you figure also that there is no social security taken out for capital gains, this starts to look like a tax bargain compared to the 28% plus SSI most of us pay on regular income.

I am fairly sure of these facts, Dave, but would welcome your correction as I am just a non-tax professional trying to keep track of all this myself!

-- Scott McAlpine (scottmcalpine@juno.com), December 04, 2001.

We did it for a while when we were a bit younger. Best if you can actually keep the houses after you renovate them and hold them for investments (if you make $ on the first one or two, you might have enough $$ to.) Or keep turning them until you can pay for your last upgrade (as your own place) with no mortgage.

You have to be FAST b/c time is money. If you do it with a spouse or partner, you have to have a pretty strong relationship!

Do the demographic homework. It helps to know how to find inexpensive, yet solid and *attractive* materials for rennovation. You need undervalued properties in a geographic area that will grow over time (at least 10 years). Understand all the legal stuff! Get yourself insured. Watch the lending rates, which I think are more critical than the housing prices (interest rates still seem high to me.) Factor in inflation/deflation, in terms of your market resell potential. Most importantly, be a good seller...offer a good solid home to your buyer (and oh, know a good realtor or two!) Good luck to you!

-- sheepish (WA) (the_original_sheepish@hotmail.com), December 04, 2001.

Tom

If you live in the house for AT LEAST TWO YEARS out of the last five you will pay zero capital gains at this time. (Don't know about the state of MI, only the feds.) However as the illusionary surplus shrinks the Government may eliminate this benefit at any time.

It may take two years to get the fix-up job done if it is weekends and nights. Maybe this will help you out.

Talk to you later.

-- Bob in WI (bjwick@hotmail.com), December 04, 2001.

Scott, you can go crazy trying to keep track of the IRS. ; ) Even they themselves give conflicting answers at times. Once I wrote them 3 times, same exact question, got totally different answers every time. Just this summer I had an experience which one local office was totally unhelpful. I went to another office 40 miles away from them and it was like night and day and they resolved my problem with no hassles. That is a bargain avoiding SSI tax and some say it's impossible but it isn't. The bulk of my income the past several years has been short term cap gains and I don't worry too much about not contributing to SSI because who knows if it'll even exist in 30 years. Yes, that's correct about 20% for assets held over 1 year for people in ordinary income above 15% tax bracket. Only 10% in 15% bracket. Where they really get people is in short term cap gains, assets held under 1 year. Then they tax them at your ordinary income rate which can be up to 39% if your in the above 15% bracket. So I guess I'd be aware of that if I was flipping properties for a profit unless it's just one at a time.

-- Dave (something@somewhere.com), December 04, 2001.

WOW!!!!!! Thanks for all the answers.

Now would the same hold true if one were to do it with "Handyman" duplexes or quad apartment buildings?

-- TomK(mich) (tjk@cac.net), December 04, 2001.

I was the one that said the tax rate was 44 percent. That was 26 percent federal and 18 percent state, total of 44 percent. The Fed has gone down but the state is still the same. As for duplexes and complexes with more than two units, some owners like them personally I only owned one and lost a ton. When you get ready to sell you have a very limited market. Only other land lords are interested. one other thing about the property you want to buy to fix up and resell. Three bedrooms are a min. If you have only two bedrooms, you have eliminated people with two children of opposite sex, even single parents with two different sex children will pass it up and most families with two teenagers will really need three. I know lots of us have got by with less but no one really expects two teens to share a room.

-- David (bluewaterfarm@mindspring.com), December 04, 2001.

Re: duplexes or quads. I wouldn't personally be interested in them, because resale would be tougher and you would have a lot more problems if you held them for investment (rentals.) Anyone that I know that bought them, pretty much ended up losing money or having to pay a property manager for the hassles. Still, your mileage may vary.

I don't understand multiple family housing. Anything I don't understand, I don't spend money on...especially that much money!

-- sheepish (WA) (the_original_sheepish@hotmail.com), December 05, 2001.