Buying and Selling Distressed Houses for Maximum Profit

If you want to become a real estate investor, find a "fixer-upper" owned by an anxious seller. Finding distressed houses at bargain prices, fixing them up, and then selling them on a consistent basis can make you a millionaire.

Why Sellers Sell At a Discount

Homeowners problems often prevent them from staying on top of their homes upkeep, and factors such as job loss, divorce, serious illness, various addictions, or other personal problems quickly overwhelm them. These sellers cant make the needed repairs because of financial or physical limitations, and when that happens, their home becomes a low priority and sometimes will go into foreclosure.

Look for the "Triple D"

Home sellers with three problems give beginning investors a great opportunity. A "Triple D" is a Doghouse, involved in a Divorce, and in Default. The label "doghouse" comes from Southern California Realtors who used this term to describe the worst fixers. These houses maybe "tired" and need only cosmetic work in order to favorably compare with other homes in the area.

What to Look for in a Doghouse

The hardest house for a homeowner to sell is a "doghouse," "dump," or "fixer-upper." These run-down houses scare off most buyers, who dont have the money to cover the down payment, closing costs, new furniture, carpeting, appliances, roof repairs, and other deferred maintenance required to bring the home back into top condition.

As you look through the classified ads or at realtor listings, keep an eye out for terms like "handyman special," "as is," "fixer," or other tell-tale words. Also have your agent use similar terms when scanning the Multiple Listing Service for your target area.

Once youve found a property that you can turn from doghouse to dollhouse, find out the sellers problem and then offer a solution. Distressed sellers frequently experience financial problems and need cash as soon as possible. Therefore, if youre ready to close quickly, youll be set to negotiate a lower sales price.

How to Close Quickly

Find an experienced lender and get yourself not only "pre-qualified," but also "pre-approved." Taking that second step assures worried sellers that you already have your loan in place for their property, and this puts you well ahead of other potential buyers.

How to Know When "Bad" Is Good

When you first start out in the real estate "fixer" business, youll want to look for "ugly" houses needing only cosmetic work. Look for entry level fixers that just need some cleaning up, painting, and carpeting.

When youre new to the fixer game, always remember your limitations and use caution when considering houses needing structural repairs. My husband replaces structural beams, sub-flooring, walls, plumbing, and electrical systems, but he acquired those skills after years of experience.

If you find a house with structural problems, get estimates from reliable contractors to do the work. Experience teaches you how to do more over time. Until then, rely on experienced professionals to do the repairs. Take professional estimates into account before deciding whether or not to purchase an investment property.

The Easiest Houses to Sell

A dollhouse, located in a popular neighborhood, sells the quickest. For instance, we once sold a home we named "Orange Tree Cottage" in just three hours! To qualify as a dollhouse, a home must be in a location that buyers want and must offer the number of bedrooms, bathrooms, and amenities theyre seeking. Beyond the price, however, buyers purchase the house that meets both their basic requirements and their emotional needs.

Filling Buyers Emotional Needs

After many years of investment experience, weve found that using Design Psychology and Marketing Psychology techniques greatly increases our profits. Both concepts go far beyond "curb appeal."

For instance, we use colors that target our prospective buyers income level and match the selling season. Generally, buyers of higher-priced homes prefer complex colors, and using cool colors during hot weather and warm colors in cold seasons makes buyers feel more comfortable. We also paint the front door a happy color and entice buyers into the house by placing potted plants on the porch.

Over the years, weve bought and sold dozens of distressed properties. By using caution and common sense, as well as following a few simple rules and using Design Psychology strategies, you, too, can become a wealthy real estate investor!

c Copyright 2004, Jeanette J. Fisher. All rights reserved.