When Aaron and Sharon Hase of Arlington purchased their first fixer-upper home two years ago, they knew from the start they wanted to resell it with the goal of making a tidy profit.
During the real estate boom of the mid-2000s, their story might have sounded like countless others, but today the Hases may be unique among buyers. Only a few hearty souls are looking to buy anything with the goal to resell — much less a house they don’t feel certain will hold its value.
But the Hases, neither of whom had any real estate or home improvement experience, took the risk and it paid off. The couple just sold the house and will make a six-figure profit when the transaction closes in December.
“You make your money when you buy, not when you sell,” said Aaron, who pointed out the key is buying a house at below market value so that if you need to turn around and sell it the next day, you can do so without losing any money.
For the Hases, who are ordinary buyers and not big real estate investors, an essential part of their plan was doing the renovation work themselves and living in it for a couple of years as a primary residence to avoid coughing up their profits in capital gains taxes.
The Taxpayer Relief Act of 1997 allows people to sell a home they have lived in for two of the past five years as a primary residence without paying capital gains on the profit, up to $500,000 for married couples.
The Hases also were careful to buy a house that required cosmetic work but no major structural repairs, limiting their renovation budget to $25,000. They gutted the two bathrooms, installed new appliances in the kitchen to replace those stripped by the previous owners, put in new countertops and added new light fixtures and doors.
“You definitely want to keep renovation expenses under $40,000 unless you’re a pro,” Aaron said. “And you really can do more of the work yourself than you think.”
Dan Oxenburg, an independent broker with Mount High Realty in Occoquan, Va., does not recommend average Joes purchase and flip a foreclosure or rehab home.
“If you don’t know the ropes you can get in trouble,” he said. Oxenburg joined an investment group where he learned how to renovate and resell houses and initially shared the risk with other investors.
Like the Hases, he emphasized the importance of buying a fixer-upper at less than market value and searching for a deal where you know you can make $80,000 to $100,000 in profit. He said if you’re looking at a margin of $20,000 it is too risky if the market goes south.
Buyers should avoid homes with major structural damage, Oxenburg said, and focus on those that require relatively inexpensive fixes, such as minor roof repairs, new carpet or kitchen counters. He says most foreclosure homes are going to require at least $5,000 to $10,000 in repairs because they have been sitting empty or the former owners did not take care of them.
If you need to hire a contractor to help with repairs, however, Oxenburg said to proceed with caution and make use of an experienced real estate attorney, too.
If you don’t plan to live in the house yourself before trying to sell it, he said, it pays to join an investment group and learn the ins and outs of renovating and reselling.
“If the house is going to be for yourself, however, that’s a totally different market,” Oxenburg added. “You can get an FHA loan for repairs if you’re going to live in the home.”
fixer-upper,real estate,remodeling,flipping
