Interview with Kari Hutchinson, REALTOR®
How much do you have to put down on a fixer upper?
It depends, most of the time the fixer uppers are done by cash because a lot of them won't qualify for conventional FHA or VA just because of the conditions that they are in. More than likely, most of them are completely cash. Unless it's considered an investment property, it can go conventional, then you're looking around 30 percent.
How can you tell if it's going to be a good fixer upper?
It's based on what it's going to resell for in the market. We call that an ARV, which is what it will resell down the road. Most of them, it just depends on what your bottom line looks like. Once you kind of get an idea of what things need to be fixed up, if it's 30, 50, 70 and then turning around and reselling it, how much you have in a buffer to resell it. You've got those real estate costs and fees in there. It just depends on the property. If you're looking to make $5,000 or if you're looking to make $50,000. But you obviously don't want to lose money. You want to see what it will end up selling for at the end based on what you are putting into that property.
Can you explain for us what ARV stands for?
ARV is considered after repair value, or the estimate of the property value after all repairs and upgrades are completed. It's just what it's going to end up ultimately selling for at the end, so you're going to pull comps within the neighborhood to see what other ones are going for that have either been completely done and then for the same size. You don't want to overdo your fixer upper. Because then at the end you're not going to have any money once you go to resell that particular home.
What would be some good fixes or cheap fixes for people interested in fixer uppers to do that they shouldn't miss out on?
The ultimately cheap fix, unless something is completely outdated, are like carpets, paints, those are easy cheap fixes. But once you get into stuff that's like really outdated, the biggest bang for your buck is going to be kitchens, bathrooms. Outside stuff just depends, like if the deck is completely fallen apart, or you've got cracked concrete, you're going to have to fix and do those different things because if you don't, you can't resell it to the consumer for all of the different loan values, because VA will flag you on different stuff with conventional loans. With cash, obviously not. But then you kind of lose your pool of what you're selling to your consumer. There are different things you have to go all in with. Sometimes when you're looking at those fixing flips, what is the deck going to cost? What is the bathroom going to cost? What is the outside paint job going to cost? If the driveway is all cracked up, what is that going to cost? Those all add up at the end. But the quickest and easiest fix, we can call it putting lipstick on a pig, is carpet and paint.
How do you help potential buyers for fixer uppers know what those costs are going to be, what those absolute repairs need to be in a home before they buy it?
We have different vendors that can go to get cost estimates. Since the Dream Property Team has been doing it so long, we can kind of go in and give you a general idea of like, this kitchen is going to cost you this, this bathroom is going to cost you this to fix. The concrete is going to cost you this, deck, etc. Those kinds of different things add up. It also depends on what the consumer chooses to put into the kitchen, if it's granite countertops versus Corian countertops or Formica, etc, throughout the home. But just for a basic price point in house, you want to keep it kind of mainstream. If you're going up in that higher luxury resale of a fix and flip, then you better put those luxury items in there and that's going to cost you more.
For the main repairs that need to be done to a home, can they get those bids before they buy the home or before they put the offer in on the home?
REALTORS®, like myself, can give them a general idea of what things are going to cost. I mean, with the market, you have to think fast on it and get that offer in, because especially there's other investors that are purchasing those properties. You don't have a whole lot of time to kind of investigate and research, and that's why having someone that has done 300 and some properties can go in and help you easily make those choices and be like bing, bing, bing, bing, that's what, how much all this is going to cost you, you know. Then you also have to put in something which we call a hidden fee, which you put at least $10,000 in your hidden fee for stuff that you don't know that might come up because you can't physically see it at the moment or anything of that nature. You've got to have a buffer within that too.
For someone who is going to be considering buying a fixer upper for the first time, do they ever live in it? What's the difference between someone who's buying a fixer upper for themselves or someone who is buying a fixer upper that they're going to flip?
There's really no difference in it, I guess it's just the condition that you're willing to live in. And I have clients that do buy the fixer uppers because maybe they’re just 1970s and they want to generally do updates through the house and then they can get some more money within doing so, living in the property versus holding it and fixing and flipping. There's really not so much of a difference between the two. It's just a matter of if you want to be inconvenienced living in the house while doing it versus just getting it done and then moving in or reselling the property. But we see both of them quite often.
Do you find that people are buying fixer uppers for themselves just because of budget with the current market?
Yes. We saw a lot of that, and we still continue to see that just because of the supply and the demand. And I hate to say this, but some of them, the consumer is settling for something. And it may be due to not so much settling, but maybe they wanted a particular area, and that's all that was available in that area, because they want their kids to go to the school or they just want to be in that particular area. When you only have a handful of homes for sale, sometimes a consumer will settle for that house versus having the opportunity to choose from 20 some houses in a particular area. It might end up being a fix and flip, something that they need to renovate, but it's livable.
With your experience of working with so many fixer uppers, what would be the red flag you would see for a potential buyer to not move forward. Have you ever talked someone out of buying a fixer upper?
Yes, we've talked people out of a fixer-upper, especially if it is stuff that can end up being very costly. Here in Colorado, things that will be very costly are foundation issues. That can be anywhere from X dollars up to thousands of dollars to fix foundation issues, and that's just because of our soil that's around here. We have the cracks, and the old foundations, and things of that nature. Some of them you can visually see, like this one is probably going to cost you $40,000. If you can get it cheap enough, it's okay. But in the long run, what I tell people is the flaws you buy with, are the flaws you're going to sell with. If you can't fix those flaws properly, then they’re still going to be there for the next person coming forward. If it's a house backed up to the interstate, you can start dropping those different prices just based on its location, condition, and price. Talking people out just because of some different items that may be going on with that particular property. Maybe the sewer line is completely broken and that's $50,000 and the seller is not willing to come down on it. Now you just lost $50,000 in your margin to try to fix and flip this house. That might not just make any sense. We try to always make sure whatever home that we sell somebody that they have the anticipation to fix it and flip it, that they're going to make money, we don't have a crystal ball. But that's our job: to know the market, know how it's going, know how it's changing, know what ideally you will make putting into something if you don't go over. That make sense?
What would be the conversation you would have with somebody who's listing a home that doesn't know they're selling a fixer-upper?
Good question. A conversation you would have with somebody. A couple of months ago, you could pretty much put anything on the market, and somebody would buy it. For instance, you might have that conversation with them. If you do a little bit of paint, or do a clean out, do something, you may see more money in your pocket and have a little bit more in offers. The biggest question is, well, how come you're putting my house worth this, but the house two doors down sold for that? It's having that conversation, because your home is not updated, or your home is dirty, or your home is cluttered. There are all those different things that go into factor when we're trying to sell your house, what the ultimate bottom line is with it. We try to compare apples to apples, but you can’t always compare apples to apples if someone over here has a pristine house and no offense over here, yours is just mediocre.
Who would be a great buyer for a fixed upper? What type of personality is a great buyer for a fixer-upper?
It would be somebody that's a go-getter; I mean, that can make the phone calls, that could do the different things, that wants to do the hard work. I mean pretty much anybody can do it; it just depends. I have some people that buy them, and they have a contractor that takes care of everything for them. You do not necessarily have to have that personality, but if you are taking care of it yourself, you’ve got to get in and you’ve got to get it done. Time is money, flip it and get it back on the market. I mean, unless you're wanting just to dabble in it and do it and it takes you however long, then that's up to you. But the faster you can flip it, the faster you can make your return back and go on to the next one.
On the hunt for an investment property in Colorado Springs or the surrounding areas, contact Kari Hutchinson of the Dream Property Team here.