Homes that need work are excellent bargains if you do your homework. If you do not do your homework properly, that bargain can turn into a money pit. Cost overruns, contractor disputes and building violations can wipe out your equity.
A good source of homes that need work are corporate owned properties. Another source are homes that are owned by the various government agencies.
The following web sites are free and you can search nationwide for homes:
Fannie Mae Freddie Mac Dept. of Veterans Affairs
Dept. of HUD US Dept. of Agriculture
After you find the property that you would like to purchase and before you put in your offer, have a real estate agent give you a market analysis of the area. You need to know what the market trends are. How many properties are on the market? What houses have been selling for in the last six (6) months? What is the difference between the sale price and the list price? How many properties were on the market and did not sell?
Most government and bank owned properties are sold in their as is condition. The fact that the property is being sold in it’s as is condition highlights the fact that you should get a home inspection completed by a professional home inspector. The inspection will let you know the present condition of the property.
The home inspection will cover the plumbing, heating, electrical and roofing systems. The inspector will also let you know of any structural problems that exist or if there is any pest infestation.
It is important to check with the municipality to make sure that there are no outstanding violations nor any open building permits. Since you are purchasing the property in it’s as is condition, you would be responsible for any violations and/or the closing of outstanding permits.
My agency represented a bank that had a property where the second story of a property had to be removed because the previous owner did not follow the building construction guidelines. Another time an addition was put on the rear and the final inspection was never completed. When we applied to close out the permits, some of the work had to be redone. Situations such as this can be a budget buster.
The listing agent is another source of information. Find out if there have been any inspections completed and what were the results. How long has the property been vacant? Ask if there is any time left on the home warranty (newer construction).
Newer homes are usually sold with a home warranty. Check with the builder, real estate agent or building officials to get the name of the warranty company. Then contact the company and see what items are covered.
If you are financing the property, you should make sure that your lender is aware that you are purchasing a property that needs repair. The lender also needs to know that no repairs will be able to be made prior to closing. This will have an affect on the type of mortgage that is available.
Now that you know the values in the area and the condition of the property and the financing that is available, you are ready to present an offer. Your offer will be based on market data not a figure drawn out of the air.