How to spot a home with potential

April 15, 2010 | 50 Comments

By Marilyn Lewis of MSN Real Estate

I found this great article on fixer-uppers (homes with potential) from MSN Real Estate. My husband and I have been buying and fixing up houses for the past 10+ years. It does take some practice in seeing the “potential” in a home that not in great shape. Structural and foundation problems need to be addressed immediatley, but small cosmetic changes can make a HUGE impact.

Steve Gray and his wife, Deanna, bought a dowdy fixer-upper in Indianapolis 10 years ago. The windows were shot, the lighting was old and it was a time machine, with décor unchanged from 40 years ago. Oh, and it was beige, beige, beige.

“The walls were the same color as the carpets, which were the same color as the ceiling,” Gray says.

But what the couple wanted most from the purchase was the old Lantern Hills neighborhood; it had been the exclusive location when they were kids.

Also, they saw something that others apparently had missed: The house had amazing potential. True, there were no granite countertops, spa bath or stylish cabinets. But there was something much better: The three-bedroom, three-bath house was a classic example of mid-20th century “Prairie” style (think Frank Lloyd Wright). It had a walk-out basement, enclosed courtyard and a 2-acre, wooded, hilltop lot.

The Grays made cosmetic changes — new countertops, paint, floor coverings and light fixtures — shortly after moving in. With these easy and relatively cheap fixes, it became a terrific home and a solid investment. Then, they embarked on a long-term plan for remodeling and expanding in stages.

“I’ll bet we saved 20% because there were not a lot of people who could envision what the house could really be,” says Gray, who is a professional remodeler.

Assemble a team
Before making a move, get input from qualified professionals. Most remodelers will visit a home you’re considering for free, pointing out obvious problems and offering a “guess-timate” of the cost of achieving the changes that you envision, Gray says.

A trusted real-estate agent who knows what sells well in your market can also help. “Work with them on running the comps, looking at the neighborhood and understanding what you could do with a particular home to increase its economic value and value as a place to live,” Fritschen says.

Don’t get your heart set on a home until a home inspector has given it a thorough examination. If you make an offer on a house, make the sale contingent on the inspection, which means that you have the right to back out or negotiate further if the inspection turns up problems. The seller usually pays for the inspection, which runs around $300, depending on the locale. If possible, go along on the inspection, to see the house through the inspector’s eyes.

Signs of potential
To find the homes with great potential, you must screen for qualities that make a worthy investment and for problems that could suck a hole in your savings.

For a worthy investment, look for:

  • A great location. Location was the first thing each expert mentioned. Get into a great neighborhood at a discount by buying a small home that you can expand later. “Look for a neighborhood where (other) houses have been upgraded,” advises Fritschen, who publishes advice, articles and calculators for remodeling. If you plan to add on, expand the home’s size only to the neighborhood’s average or slightly above. Rule of thumb: You get a better return on your investment from a smaller house in a great neighborhood than from a fancy house in a so-so neighborhood. Finding the right neighborhood may take detective work: Knock on doors and ask neighbors about turnover — low turnover is good — and whether they think the neighborhood is getting better or worse. Don’t just visit in daylight. To get the full picture, Gray advises returning repeatedly, in the evenings, at night and on weekends when residents are home.
  • Relative youth. Resist the charms of historical homes unless you’ve got expertise or deep pockets. Find a home no older than 50 years, Fritschen says. “If it’s 100 years old, there are so many fundamental problems with piping, electrical, heating and foundation — it just goes on and on.” Simple ranch homes and newer tract homes are your safest bets, Wysocki says. With the housing crash dumping lots of orphaned new homes on the market, it’s a great moment to score a place with potential, as long as it only needs minor TLC. (Even with newer homes, do your research:
  • Simple upgrades. Your mission is to find a home that’s ignored and underpriced because of its shaggy looks, yet really requires only a “makeover” — simple, inexpensive cosmetic improvements like new paint, flooring and light fixtures. That means avoiding the impulse to buy a home that needs upgrades that require moving or replacing walls, cabinets, countertops, appliances, plumbing or electrical systems. “HGTV says that you can do a room makeover for $750, but that doesn’t really happen in the real world,” Gray says. The best fixers have kitchens and master baths that are spiffed up easily and cheaply. Otherwise, you’ll find yourself easily spending $5,000 on granite countertops alone. In Indianapolis, Gray says, the average bathroom facelift (new flooring, mirrors, paint, countertops and vanity, hardware, light fixtures, sink and faucet) runs $5,000 to $7,000. A full-scale remodel — moving walls, plumbing, vanity and wiring, and replacing tub, sink, toilet, flooring, paint and counters and building a new tile or stone shower — costs $40,000 to $55,000, depending on the  job and choice of materials.
  • A floor plan you can live with: Find a home with a basic layout that makes you happy just as is. To contemporary buyers, that usually means an open floor plan, not a warren of small rooms. At the same time, watch out for too much openness, for bedrooms and bathrooms that lack privacy. Also, keep in mind that, in suburban areas, buyers expect a home to have a garage, so investing in a home without one could mean sacrificing resale value. 
  • Light. Picture how you respond to a light-filled home and you’ll recognize what value natural light adds. Dark houses aren’t always as easy to fix as you might think. If you find yourself thinking, “I could just plug a window in over there,” stop. It’s not expensive to add a new window, Wysocki says. But if a room seems to call out for a window where there is none, there may be a reason: zoning issues, structural problems or an ugly house next door.
  • Plenty of closets and storage. While it’s true that you can always add on, it’ll cost you, so look for plenty of convenient storage included. Fritschen estimates that adding a simple storage area (with a concrete floor, walls and a roof) runs $40 per square foot, on average. Prices vary depending on local costs, and contractors often charge a minimum to cover overhead, which means that a per-square-foot cost of a 400-square-foot garage may be less than that of a 50-square-foot shed.
  • Updated maintenance. Ask if the sellers kept service records on the furnace and mechanical equipment and look them over. Were appliances and home systems serviced annually? Try all doors, drawers, knobs, windows, faucets and appliances to ensure that everything works and that you’ll understand any expenses you’ll be taking on.

When to be wary
Impulse buys are fine for shoes and clothes, but a home is too expensive and trouble-prone to let your brain abandon you when you need it most. “The biggest problem for first-time homebuyers is that they’re emotionally charged,” Gray says. “They get invested and don’t really investigate it far enough.”

Here are signs to back away, no matter how deeply you are infatuated:

  • Single bathrooms.  A solo bathroom can limit a home’s resale value. And experts disagree on the wisdom of adding an additional bathroom later. “There’s no way you should buy something with just one bathroom in a suburban area,” Wysocki says, although he adds that it might be OK in urban neighborhoods popular with singles. Fritschen, however, views adding a bathroom to a one-bath home as “free money” because it can substantially boost the property’s value. It all depends on potential resale value, on your skills, your money and on whether you’re getting such a good deal that your finances allow for the extra expense.
  • Galvanized steel plumbing or aluminum wiring. Galvanized steel pipes, used before copper plumbing came along, are vulnerable to sediment buildup, leaks and corrosion. Newer plumbing uses polyethylene (PEX) or polyvinyl chloride (PVC) pipes. Aluminum wiring, a potential fire hazard, is no longer used in home construction; copper wiring’s the standard today. Either of these elderly materials signals the need, eventually, for expensive upgrades. “Each of those is a $10,000 bill,” Fritschen says.
  • Roof replacement. A home inspector can tell you if a house needs a new roof. A new roof today can last up to 50 years, depending on the material, but you don’t want to be the one to pay $20,000 to $40,000 for a new one. The investment won’t increase the home’s resale value or your pleasure. Unless a super deal makes the roof cost pencil out, find a house that has a roof with lots of life left.
  • Siding or window replacement. New siding ($10,000 to $13,000 and up) and windows ($10,000 to $18,000 and up) are not only big expenses, need for them is a danger sign: They can indicate water damage hidden inside the walls, Wysocki says.
  • Water stains. A good home inspector will point out signs of water damage. But you can keep your eye out, too. Inspect ceilings, walls and floors for stained, warped or uneven, peeling, discolored or damaged drywall or flooring. Why are these blemishes a big deal? Because they may point to mold or rot beneath the surface.
  • Rot.Check all surfaces, including in the basement, for rotting wood. Gently poke trim and wood surrounding windows and gutters with a pencil tip to spot soft, spongy or crumbly wood. Not only is replacing trim an expensive headache, but visible rot may just be the tip of the iceberg.
  • Foundation problems. Drainage and foundation repairs are thankless expenses that can run tens of thousands of dollars. To detect foundation trouble, tour the exterior, checking for cracks. If you can slide a quarter sideways into a crack, it’s too big, Gray says. Try to visit after a rain to look for water accumulating around the foundation.



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