There are many investment companies willing to buy ugly houses at very low prices. Can you profit from buying an ugly house? Ugly houses are often damaged or in need of repair/ upgrade. Usually you can buy these homes at a discount from market value. These homes are sold “as is”. Buying a house, fixing it up, and then selling it for a profit is often referred to as house flipping. Repair shows on TV have increased the popularity of house flipping. Low interest rates have also contributed to an increase in house flipping. If you choose wisely, it can be a good investment. However, problems may arise which could lead to a big headache and a financial loss.
Someone may be willing to sell a house below market value quickly if they are relocating, behind on their house payments, recently divorced, need money, can’t get good renters, to stop a foreclosure, or if their house badly needs repairs. However, if you don’t take the time to learn the business and do your research you could end up with your worst nightmare.
Before buying an ugly house consider the following:
Reasons for Buying an Ugly House
Do you want to repair and sell the house for a profit? Do you want to live in the house and hope to get a bargain? Do you want to own rental property to provide a stream of income?
Rental Property Considerations
Is there a demand for rental property in the area? What are typical rents for the area? What is the vacancy rate for rental properties in the area? Who are the typical renters for the area? Do you like to deal with renters?
Cost of All Repairs Including Labor
Will you be hiring someone to do the repairs or will you be doing the repairs yourself? Are you skilled enough to do the repairs yourself? Could there be problems with the house that may not be obvious such as electrical wiring, leaky roof, mold, rusty pipes, etc.? How long will the repairs take?
Real Estate Market Conditions
Are house prices rising or declining? What are the typical days on the market for the area-how long is a house listed for sale before it usually sells? How is the economy in the area?
Location of the House
Take a good look at the neighborhood, nearby schools, shopping, and other things that would make the house undesirable because of location. Is the house located on a busy street or in a noise area? Location of house is a very big factor when it comes to selling a house.
How much of your profit will go to taxes? Will your profit be considered a short -term capital gain, long-term capital gain, business income, or sell of a primary residence? You may be able to reduce the tax impact if you hold the property for over a year for investment purposes. If the house is your primary residence for at least two years taxes could be significantly less. Check with your tax adviser.
Financing the Purchase
How will you finance the purchase? Do you have extra cash for repairs, loan payments, property taxes, homeowners insurance. Flipping a house takes a good deal of cash flow. It you don’t already have the extra cash; you may find yourself unable to pay your normal monthly bills.
It is very wise to consider all the pros and cons of buying an ugly house before you make a financial commitment.