Buying and selling fixer-uppers can be a very profitable or costly business in San Francisco and Bay Area.
It’s important to follow some of the basic guidelines when considering “flipping” properties or buying a “fixer-upper”.
Your number one guideline is the location. Choosing the right location is very important, especially in San Francisco and Bay Area. Neighborhoods are evolving and extensive research on the evolution of the “desirable” neighborhoods could be a key to your success.
The price of the property also plays a big role in investment formula. There is a simple equation involved when calculating a number for an offer.
You should first add up all the costs involved in renovation of the property, which should be based on the property condition. Make sure you choose the right inspector for this in case you don’t know much about construction and remodeling in general.
You should be very careful when adding costs in connection with a remodel or “flip costs”. Make sure you include all the necessary labor and materials going into this effort. Choosing the right home inspector can also help, usually inspectors that are general contractors and who are actively involved in this trade can give you an idea of the cost right on the spot when performing your general inspection. In many cases, Bay Area Home Inspections can add APR (Approximate Pricing of Repairs) into your inspection report at no additional fee – just ask.
You should deduct the price of the “necessary” repairs or “section-1” from the price of the home and try to make sellers pay for it. If possible – obtain three quotes from licensed general contractors to repair all necessary repairs, make sure you ask the contractors about any other projects that arise from necessary repairs. For example if you are repairing a structural wall, there will be interior repairs associated with it since interior and exterior surfaces share a wall. Another example is when repairing or replacing a foundation, be ready to repair all the door jambs and window openings, some drywall work will need to be performed and the entire interior will most likely need to be painted due to multiple cracks and damage from re-alignment of the structural framing of the building. Contractors will not talk about this unless you ask them – they are interested in winning the project.
Always add 10% to all estimations, these funds should be used in case you come across any hidden obstacles or issues that need to be resolved.
It’s very important to have an inspection clause on your real estate contract. If needed, the inspection clause will help you back out of the real estate transaction. Last thing you want to do is to get stuck with a very bad investment.
Always be there at the time when prospective investment property is getting inspected, follow your inspector everywhere, ask questions. We also recommend sending all of your disclosures to the inspection firm ahead of time for review, many inspection companies will review documents for free, some charge a standard fee.
Create your own set of questions ahead of your inspection, ask your inspector as many questions as you want, after all – it’s your time to shine!
Most importantly – stay away from serious structural problems. Every investment should start with good bones. Replacement of foundation and extensive structural repairs are two of the most expensive building repairs known today.
Choosing the right inspection firm is like choosing your friend – choose wisely!