You don’t need your own reality television show to be like Chip and Joanna Gaines, stars of the HGTV series, “Fixer Upper.”
Fixer-uppers, or homes requiring a remodel for a return on investment, can be found in the Billings community. These properties have potential waiting to be realized with the right investor, realtor, financier and contractor.
Risky real estate
After a home appraisal and inspection, there can be unforeseen repairs needed on a newly-purchased property.
That’s why home-buying is risky business, especially with fixer-uppers.
Christopher Seder, owner and realtor with Seder Realty in Billings known for his motivational talks on real estate investing, says the risk can be lessened if you work with experienced realtors and contractors.
“Buying a fixer-upper can be risky if you do not know what you are doing,” he said. “You need to be able to determine what the property will sell for when it’s fixed up and also what the amount of repairs are going to be.”
Seder says you should always walk through the property with an experienced contractor who has done remodel projects for an accurate repair estimate.
“But even doing that there are always going to be unexpected items that come up when remodeling a property,” he said.
Travis Keller, owner of Beartooth View Construction, invested in a fixer-upper last year on the South Side with his realtor, Sharon Carter, as a weekend project for him to work on outside of his regular full-time railroad job.
Some repairs were obvious. The kitchen cupboards were coming off the walls; plaster was falling to the ground.
“But once I got in there and started tearing stuff apart, some of the floor joists were rotted,” Keller said.
And when it came time to sell several months later, an inspector told Keller and Carter the foundation was bad.
The learning experience hasn’t deterred them. The contractor/realtor duo are looking for a fixer-upper condo next, but they plan to keep it and rent it out.
“I’m very confident the next one will be much more profitable,” said Keller.
Seder says what homeowners can expect as a return on their fixer-upper investment depends on how low they purchase the property for.
“Typically investors are buying fixer-uppers between 50 percent and 75 percent of what the property is worth fixed up,” he said. “The average return is between 20 percent and 10 percent.”
Those new to real estate investing can join the Billings Real Estate Investors Association, which meets the first Thursday of every month at First Montana Title.
“This is a good place to get started and start learning from others,” Seder said. “If you want to learn about fixer-uppers and how to buy them, start reading books, attending seminars and talking to local experienced real estate investors.”
And Seder suggests searching the Montana Multiple Listing Service website for available fixer-uppers, often posted after bankruptcy and foreclosure.
“Fixer-uppers have become harder to find in Billings the past two to three years, but they are still out there,” he said. “Banks list a handful of foreclosed homes each month with some of them being fixer-uppers. And there are always individuals who are selling a property they own that has gone in disrepair.”
Several financing options are available to prospective fixer-upper purchasers, like private lenders and hard money lenders. Seder says hard money lenders loan money to real estate investors at high interest rates.
“And some bank financing is available with local banks in Billings, Montana; some real estate investors get construction loans from banks,” he said. “There are also loan options available for people who want to buy a fixer-upper, fix it up and live in it.”
The latter is called 203(k) rehabilitation mortgage insurance.
According to the U.S. Department of Housing and Urban Development website, the “Federal Housing Administration’s Limited 203(k) program permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home.”
The 203(k) loan does not apply if the homeowner does not intend to occupy the property.
Keller’s first fixer-upper was on the market for less than three months and sold for less than what he had hoped. He attributes that to unforeseen repairs and location.
More than a means to make money, home renovations are a testament to hard work and vision.
“It’s very satisfying to know what you started with and what you end up with,” Keller said.