Buying, renovating a fixer upper home

Over a year ago, my wife and I decided it was finally time to use the equity in our home in Southern California to purchase a fixer upper in western Pennsylvania with the help of my sister who’s a real estate agent.

During December 2007, we visited for Christmas and toured some neighborhoods in and around Latrobe, PA. We saw some duplexes and ran the expenses and income to make a plan for purchasing.

In February 2008, we put in an offer on a home on a comfortable residential street that needed extensive repairs. While I was in California, my sister Chrisia Simkovich and a contractor went through the house and created a preliminary budget. We bought the home for $ 26,000 after deciding there would be about $ 30,000 to $ 35,000 in fix-up costs.

We actually started on the project by late March after lining up our suppliers and labor.

Our first decision for an exit plan was to sell the house once it was on the market but I was open to having it rented out.

We made decisions to add a new kitchen cabinets and a counter which was only $ 1,000 additional and then we decided to also add a ¼ bath on the first floor. Our costs grew from the estimated mid-30s to over $ 40,000 by the time the project was done.

Our sales price was originally $ 89,000 which was based on market comparisons and we felt it would put us under other similar houses on the market.

We renovated the house and had it ready for market within 3 months. We had buyers and strong interest and we also discovered some details that we overlooked. The bathroom on the second floor needed a new tub and surround – we did that after some initial buyers toured the home, liked it but let us know their opinions.

Then we also painted the front deck railings to change from the wood grain and conform more to the blue-grey of the home’s new siding.

Finally, we reached an agreement within two months of being on the market with a woman who said she could buy it if I agreed to carry the note. Based on knowledge of her and back and forth discussions, we agreed it was do-able. We reached agreement on a price and terms which was not much below our original asking price.

Here are some things I learned from this first successful real estate transaction:

#1 Know your reasons for investing: short-term cash flow, longer term investing

#2 Select your home and target market carefully

#3 Go from top to bottom to determine your budget in fixing up a house

#4 Having in mind the variables in order to increase your budget, if needed

#5 Make sure you have adequate capital on hand

#6 Network, network with a real estate agent and personal contacts to sell

#7 Have one or two exit strategies and adapt as necessary

#8 Develop good relationships with your suppliers

#9 Treat your workers well and have trust in the one designated foreman

#10 Know your next move ahead of time

Having people you can trust and being prepared financially are key elements to ensure successful real estate transactions.