Homes that require extensive repairs, and can be purchased at bargain prices. Also known as fixer-upper homes. Lenders are reluctant to lend for these but HUD′s 203(k) program can help.
What are handyman specials? Handyman special is another term that many people use for properties that need substantial repair in order to be habitable and comfortable. The saying goes that, "one man's trash is another man's treasure". That is very true when it comes to handyman specials. This is because some people will simply ignore and avoid properties that need repairs, while others find huge profits to be made with a handyman special home.
There is no doubt that investors love handyman specials. This is because they see the potential value and profit that can be turned when you purchase a home that needs repairs. So many buyers ignore properties that need extensive renovations simply because they don't want to have to do any work in order to move into the home. In fact, most buyers want properties that are move-in ready where nothing major has to be done. This leaves a lot of opportunity for bargain hunters who are willing to put in the time, money and effort it takes to renovate and rehabilitate a handyman special.
By definition, handyman specials are distressed in some way. That makes them undesirable to most typical home buyers. These kinds of properties can need minor or major repairs. This can include things like the need for new flooring, new paint, roof repairs, landscaping and even a major floorplan overhaul. Savvy investors realize that there is profit to be made on properties as long as you do the math in advance.
The reason why many investors are interested in handyman specials is because they want to flip them for profit. Obviously, if you can get a house for a great deal, there is a lot of room to make money. For instance, if you find a home that needs repairs and is priced at $30,000, you would assess how much those repairs would cost in order to find out your potential profit. Let's say that you have estimates done and find out that the house needs $18,000 worth of repairs. You then do a market analysis and learn that the house would be worth about $72,000 in repaired condition. That means that you would add up the $30,000 you paid for the property plus $18,000 worth of repairs. You would also factor in your monthly payment during this time and any other holding costs, such as utilities and taxes. If you're going to hire a real estate agent, you also need to factor in commissions.
As you can see, figuring out the profits on a handyman special that you're going to flip isn't cut and dry. You have to take several different figures into consideration in order to make sure that you don't lose money on the deal. This is why it is so important to get a good deal on the buying side to give yourself plenty of room and padding in your budget. Most experienced home flippers know that you should always go with the worst-case scenario when figuring your repair budget. In other words, if things can go wrong, they likely will go wrong if you don't have enough money allotted.
When considering handyman special properties, there are certain things that you need to know before going in. Here are some tips to remember:
Handyman special homes for sale are very tempting to many investors, however you also have to know how to get them financed. If you are an investor who will not be living in the home then you may have to look at some creative financing options such as private or hard money lenders. Of course, if you have your own cash and can finance the rehab costs then you can purchase the home with no problem.
If you plan to owner occupy the property, you do have another option which is an FHA insured loan called the 203(k). This loan is only for owner occupants, and it allows the purchaser to finance the property plus the rehab costs. The money is put into an escrow account and drawn out as the renovations are completed. This makes handyman special properties easier to buy for people who plan to live in the home for the long-term. It also helps the neighborhood around the property as it increases the value in the area and keeps homes from being vacant eyesores.
A handyman special means that you will have to invest time and money in significantly repairing and renovating the home before it will be livable. While this may sound like a lot of work, it is likely the reason why you were able to get the home for a good price.
Handyman specials are in need of major renovations and repairs. For this reason, they are often cheaper than other homes, but are also harder to get financing for from lenders.
Conventional wisdom says that a handyman special is more of a bargain in a strong housing market, because the relative price difference is greater. But, a handyman special property is probably easier to find in the current market. In any case, it is usually the right time to buy one because of the strong discounts available.
One option available to those who want to include the purchase price and the cost of renovating the home is to pursue a FHA 203(k) loan. Talk to your lender to see if they participate in the program.