By Leonard Baron
Buying a Fixer-Upper
Hello Leonard. I am in the market for a move-up home, and I am considering several properties that all need a lot of work. I haven’t done a renovation before and keep getting advised by friends that I should avoid doing one because of the uncontrollable costs. Larry N., Chicago
Hi Larry – There’s a funny saying about doing renovations called the “Theory of Cracker Jacktivity.” What it says is that doing a renovation is like a box of Cracker Jacks; there’s always a surprise inside! And that’s great guidance. Rarely do renovations go as planned, and often they cost double or even triple what an inexperienced owner initially estimates. Not only are construction costs outrageous, but often when you peel back a wall or floor you find other issues that need to be addressed. In addition, most people select all the inexpensive items in their initial quotes, only to upgrade to better-quality and higher-cost materials once the job begins.
The best route in buying a home is to buy something that is already in good shape. Don’t let yourself get intrigued into thinking you can do a renovation for less, or that it will go smoothly. If you do still plan to consider this, I’d suggest finding several people who have taken this route and get some additional opinions. I’d guess you won’t find one person who stayed even close to budget, and hopefully you’ll move the fixer-upper option way down on your list of potential courses of action.
Lease for Tenant – Newby Landlord
Dear Professor, I am a new landlord – about to close escrow on my first rental property. It needs some rehab, and then I want to get it rented quickly. I need to get a good credit application, lease, disclosures needed and credit report. What’s the best way to go about this? Tina N., Pueblo, Colo.
Hi Tina – Congratulations on becoming a new rental property owner. It can be a really rewarding experience – financially and otherwise – or it can be a big hassle. Separate from your questions, I’d suggest you put the property in good shape, ask reasonable rents and treat your tenants with respect. That will make life easier and hopefully the most profitable it can be.
Here’s what I suggest on your questions:
Credit application, lease and disclosures: I’d suggest have your real estate sales professional provide the state association of Realtors® documents. They’ve been heavily vetted by lawyers and should give you decent protection on your lease. Alternatively, you could join the local apartment building owners association and use its documents, which are probably similar and just as good.
Credit report: This one is tougher. Getting credit reports has gotten a lot harder these days. Ask whether your real estate professional can do it. Or the apartment building owners association, if you join, probably has this service. There’s also a great service from the TransUnion credit reporting agency called SmartMove. So check all those out, and hopefully you’ll get good access to run that credit report once you find a potential tenant.
Leonard Baron is America’s Real Estate Professor®. His unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com.
Email your questions to: Leonard@ProfessorBaron.com