Tax Exemption for Mass Home Buyers and Sellers, Part 5 – Finding Homes to Fix

Repair House Sources

For serial homebuyers/sellers who use the federal tax break to avoid paying capital gains taxes, one key to making the process work is finding lower-priced homes that need repair.

There are good deals even though we only operate part time. For my wife and I, finding good deals on repairs consists mostly of reading the newspaper, checking the Internet, and driving around the neighborhoods.

In these times of economic recession, the biggest source of repaired houses are those repossessed by banks. These are houses where the owner cannot make his bank loan payments and is forced to evict the house when the bank takes it away. Often the previous owner will express his hostility toward the bank by destroying fixtures, doors, walls, and other parts of the house. While this can give the house an uninhabitable appearance, most of the damage is fairly easy to repair. This is just the type of home the aspiring handyman investor is looking for, as it has equity built in because the damage is only superficial.

A second source of good properties to repair is the Veterans Administration (VA) and Housing and Urban Development (HUD). These properties have had owners unable to make their loan payments from these respective organizations, and the VA and HUD have repossessed the homes and put them back on the market. VA and HUD homes are usually offered at a pretty good price, below market if they need serious work up. Similar to bank repos, homeowners have let their homes fall into disrepair and generally need, at the very least, a paint job and sometimes a major repair.

I bought a VA house, in 2003, in a nice neighborhood that scared off a lot of other investors because there was water damage on the ceiling in both bathrooms. Upon close examination, I located the damage to some cracks in the water cooler on the roof. Was it worth paying $105,000 for a house in a neighborhood where similar houses sold for $150,000 (and now sell for $200,000)? I bet it was. I could replace the cooler and fix the roof for $2,000 to $3,000. The remaining $45,000 of equity was my reward for taking the time to go up on the roof and thoroughly inspect the cooler with a flashlight. HUD, VA, and other federal agencies foreclosed homes can be found on the HUD/VA website.

My wife and I purchased our first bank repo by responding to a newspaper ad. From the ad, it seemed to tick all our boxes, a below-market, repairable home in a nice neighborhood. I visited the property with my handyman friend, made an offer and bought the property.

To buy VA and HUD repos, you can also get printed listings from real estate agents, some of whom specialize in such sales. Newly repossessed homes are generally listed every two weeks.