A fixer is a property that is not in market condition. It needs repair, renovation or complete rehabilitation.
Type of Fixers/Definitions:
Owner/User Fixer – This fixer comes to market at slightly under market value and requires repair on varying levels. The owner can fix it before they move in or move in and repair as they go along. By default an owner/user fixer is not a contractors fixer as the finished repairs may not increase the value enough for the new owner to re-sell the property and make his repair investment back along with any profit.
Contractors Fixer – This property is usually in terrible condition and will be sold considerably below market value. It is not for the faint of heart and the owner/user will probably not have the know-how or resources to attempt to purchase and rehab this type of property. A Contractors fixer implies that a contractor can come in, repair this property and re-market it to recoup his investment and make a tidy profit. It is a fixer for extremely experienced speculators or builders.
Cosmetic Fixer – This is a fixer that may have seen some upgrades and needs new flooring, carpets, paint, perhaps a new kitchen or bath. The bones (the building as a whole) is in good shape, including the exterior and foundation and requires a little ingenuity and vision to bring back to it’s former glory. This usually will not include moving walls or reconfiguring the space. This does not usually include a capital improvement. This is the type of fixer for the DIY’er who can handle smaller renovations and improvements.
Tear Down – I call this type of property the faller downer rather than the fixer upper. This is a property that may or may not have been condemned by the city but is in such disrepair that the only hope is to demolish it and start fresh.
Historic Fixer – In San Francisco any building that was built before 1906 is unofficially considered an historic property and what this means is that the person repairing the property must keep the old facade (exterior front) of the building as it is, perhaps restoring ,it (if indicated) so as not to alter that facade in keeping with the ideal of protecting the historical integrity of that particular building and the neighborhood. Altering this building, for instance, adding a garage, may not be possible and should be considered carefully by professionals (inspectors, city planning, an architect and builder who specialize in this type of project) before moving ahead with this type of fixer purchase.
Fixer/Flipper - This is a fixer that is purchased for repair and to re-market for a profit. This is a speculative fixer. In San Francisco presently, most sellers and their real estate agents are pricing these properties close to market value and so the fixer flipper is becoming a purchase of the past. Often, these types of properties are sold off-market, not on the MLS or common web search sites, through a private network of builders and owners and agents who particularly seek out these types of properties. This type of sale is often done privately and the owner/user should ask varying Realtors if they have any “pocket or private listings”. Those agents facilitating the sale, if a member of their board of Realtors should report those sales as unlisted sold properties.
Single Family Fixer- A single family home that needs repair. This may give you the opportunity to put in new and updated custom kitchens and baths, reconfigure and build out areas, like a basement and attic.
Multi-Unit Fixer- In San Francisco a 1-4 unit building is considered residential. If there is a vacant unit upon purchase that has not been renovated, you can upgrade that unit and move in to receive income from the other units or upgrade those units as they become available (vacant) and sell them individually as TIC’s. This can give you the opportunity for residential income property and home ownership and the accompanying tax advantages and 1031 exchange opportunities available for that, and the opportunity to offset a large mortgage by selling units to others with home ownership goals like yours.
First Time Buyer Fixer- A unit, TIC or condo in a multi unit property that is for individual sale. Making sure your purchase loan is assumable and you have a good exit strategy, you can purchase carefully, improve the unit and sell quickly or when the market is right to build your equity, qualify in the future for a larger purchase or add your profit to a larger down payment perhaps for a single family home or larger unit purchase. This type of fixer should need cosmetic work only and not infringe or involve the other unit owners.
Key Terms to determine condition:
- Wood floors – refinishing or replacing?
- Down to the studs-Means ripping out walls to the wood studs and beams of the house. This indicates the need usually for upgraded plumbing, electrical, new sheet rock and wall finishes.
- Reconfiguration- The rooms may be small and walls need to be removed or relocated to make the space more live-able and up to date.
- Landscaping – Outdoor yard space needs to be completely redone. It is probably overgrown and/or dead.
- An overgrown yard behind a fixer
- Plumbing & Electrical- No upgrades may have been done. The plumbing & electrical need to be redone to bring it up to City Planning code. This involves opening walls, is costly and is considered a capital improvement.
- Foundation- A key issue in San Francisco. We have a UMB list (Unreinforced Masonry Building) in SF. check with city planning as a UMB list can be purchased for a fee (I have one) These are buildings with brick foundations which the city has tagged as requiring upgrading. A brick foundation may present challenges in obtaining homeowners insurance (check with your insurer first). These foundations may be removed and replaced with a new foundation, or they can be capped and bolted (check with a professional home inspector and a foundation contractor to weigh in on the property you are purchasing). Foundation work can cost anywhere from $50K to $500K depending on the size of the structure and the foundation work needed.
- Not for the faint of heart – This means it needs a professional to institute the myriad of repairs necessary. You probably should not even view this property and get your hopes up.
- Kitchens & Baths- this is good news. Even a DIY’er can put in new kitchens and baths.
- Footprint- This is the floor plan of the property. Alot of work can be done with permits that are obtained over the counter (without an architect) if the footprint is not disturbed and you work within the current floor plan.
- Entitlements-These are the varying stages of application for finalizing plans and permits for building alteration, expansion, extension, addition, demolition, rehabilitation and any other type of work that will be done to the property that requires approved plans and permits. The process has many steps and it is important to find out where the seller is in the entitlement process to determine how much time and money will need to be spent until final approval and the beginning of the work. This can often be a good way to “take the property off the hand” of the former owner who is tired of moving toward this goal.
- Plans & Permits- The former owner or seller has gone through the entitlement process and obtained approved design or architectural plans and had them approved by the building department and then purchased the permits to begin the work. When a project include plans and permits, it is ready right away to begin the rehab or development process. This saves the builder or owner/user lots of time and money since the plans and permit process can be lengthy in San Francisco. Though the seller is usually charging a premium for having successfully obtained full entitlement.
- Pest Inspection or Pest Work – In San Francisco we have what is known as a Pest Inspection. This is not only to determine if there are bugs and rodents past or present, but also fungus, mold, dry rot, water intrusion and other factors. This gives the buyer an idea of the scope of initial repairs that will be required to make the building sound. There is a dollar amount assigned to the repairs if the pest inspector were to do the work for the client. It is common in SF to see higher pest dollar amounts due to the age of many of the properties and this should not scare the buyer off. Frequently it has to do with replacing of windows and surround/sashes etc. and sealing of concrete in basements and other types of issues that can be addressed. http://www.diverse.com/
- Contractors Inspection- There Inspectors who are usually former contractors who come to the property and do a comprehensive inspection with recommendations for all repairs along with the dollar amounts for the repairs. This inspection can be done at the cost of the buyer or seller but is usually the buyers responsibility. Once the inspection is done, the Seller has a right to a copy of the report whcih can be used by that seller if you do not purchase the property. This is what an owner/user would do to determine the scope of repairs necessary and in my opinion, add another 20% to that number for over runs and custom choices…if not more. I recommend that my buyers walk through the property again with their own builder, who can also effectively determine a rough rehab dollar amount. Though a professional inspection is a wonderful way to get it all down on paper.
- Subject to tenants rights – San Francisco is a rent controlled city and the tenants that live in the properties have many rights and protections afforded to them by the San Francisco Rent Board. Loosely used, this term means that the tenants may be protected by the law and removing those tenants from the property may be difficult, challenging and requires negotiation, attorneys or other means of vacating that home or unit. A buyer should inquire what protection in particular is assigned to the tenants in the units or home individually. Each scenario may differ. A good agent will be able to refer you to the right professional resource for more information or go to www.sfgov.org/rentboard to see a copy of the rent board rules and regulations governing tenant protections, rights and vacancies.
- Ellis Act- This can be enacted by the current owner of a property which in essence allows him to go out of the buisness of landlording, so as to vacate the property for a sale, usually as TIC’s or Tenants-In-Common. There are stringent requirements and reprecussions for instituting the Ellis Act and this should be discussed and carefully determined by the prospective purchaser with a professional advisor or current owner before moving ahead. There is a website in SF devoted to a list of buildings which have instituted the ellis act. Go to http://www.sftu.org/ellis.html.
- Buy Outs- This eludes to an owner negotiate with a current tenant to vacate the property for a negotiated amount of money or other terms agreeable to both parties. This is usually done with the assistance of an attorney or other professional. This method of vacating units requires a specific approach and can also have specific reprecussions that must all be investigated before determining it’s effectivemness for a certain property.
- OMI – Owner Move in Eviction- This is instituted by a current owner or the owners relative when moving into a tenant occupied unit, thereby evicting the current occupant from his or her home. This also has a specific approach, costs, timelines and reprecussions and must be investigated thoroughly before deteriminig it’s effectiveness for taking residence in a property. This too must be figured into the cost of ownership of this type of property.
- Vacancy – The ideal state for a unit or home for purchase in San Francisco. The only challenge is the repairs and making this unit or home yours.
- RH1 – RH2 etc.- Zoning is often key to your fixer plans. Often times a fixer property may be on a lot that is zoned for more units, which means the new owner, along with an architect can expand the footprint and add units to their property, thereby increasing it’s value. This is a good type of property to look for even if it is not a fixer.
- Neighborhood approval- During the entitlement process there is a public posting on the property itself that lists the upcoming application for rennovation, which will be followed by an appointed time for a public hearing. At this time, any neighbor who opposes the rennovations or plans may step forward to discuss their opposition and the planning committee will then weigh in on whether or not changes must be made to the existing plan. Often contractors do not want to purchase a fixer until this stage of entitlement has passed, as re-doing an opposed plan can put the project back many months while re drawing plans and re-seeking final approval. This is usually the last step before final approval. Hence it may be to the owners benefit to get to know the new neighbors and have them weigh in informally on your project during the initial planning stages. I have seen owners write letters to the neighbors discussing their plans in the hope of soliciting their support by a show of signed and approved letters from the neighbors to the planning committee.
- BAAQMD- The Bay area air quality management District. In particular, the removal of asbestos (wrapping around old furnace ducts and some popcorn ceiling treatments) requires a permit and an accredited asbestos abatement & removal company. Your contractor should know about this and will secure the required permit and have the appropriate contractor do the work when and if necessary. http://www.baaqmd.gov/
- Exterior- In San Francisco we have may types of exterior treatments to our properties from stucco to wood to vinyl siding to shakes. It is important to determine how the integrity of the structure is underneath those exterior finishes so that you don’t come up with extensive dry rot suprises. Dry rot is a common issue in older structures. Again, refer to your inspectors and or builders to determine this when purchasing
- Condominium Conversion- When purchasing a multi-unit fixer the goal is often for conversion to TIC’s or ultimately the Condominium Conversion to increase the value and equity and re-sell the units individually for a profit. If your goal is condominium conversion there are requirements you will want to know as you are repairing your property to ready it for a condo conversion. http://www.zulpc.com/condo/process.html
- TIC or Tenants in Common- this is a method of holding title to a property where individuals can purchase individual units in a common building as a percentage ownernship of that building, while purchasing that building as a whole. This s a lengthy and complex subject for another discussion. http://www.andysirkin.com/HTMLArticle.cfm?Article=1
- Backing into the Number- My favorite way of assessing a fixer or project. What is the purchase price and closing costs, add costs of holding the property during the planning approval process including mortgage, insurance, loan points, construction loan, etc., contractors or builders fees, costs of items per project, ie..paint, kitchen, electrical etc. etc., cost of the move, re-marketing and real estate commission costs. This is your end cost for that property. If it is not worth it to you – don’t move ahead. Likewise, when you are selling a fixer or property and you know your buyer will be backing into the number – price it accordingly. A fixer is NOT, and shouldn’t be a market rate sale, but one that will make sense for the DIY’er or the Contractor. Often you may still find yourself after calculating all of those costs, below the market value in the neighborhood in which you are looking and may automatically move into your newly created home with what we like to call sweat equity.
- Location- This really matters when purchasing a fixer…see ‘Backing into the number’ above. Although it may cost a bundle to rehab the property, if you choose an up and coming area where alot of recent home purchases have been made or an already established area of higher end homes, you may be able to see why purchasing a fixer will be worthwhile to slowly build the home of your dreams where you might not otherwise usually afford. Likewise, if you pick an area that may not have seen many recent homeownership sales, you may see yourself at a start of a new ownership and improvement phase in that area, so evaluate carefully with a professional. Ask for a market analysis that includes market trends and activity as well as home values.
- General Contractor- This is a contractor registered with the Contractors state license board who handles the entire rennovation project, including the hiring and supervision of all of the sub contractors. This enables the homeowner to deal with one individual who is responsible for your project, and is insured accordingly. You can check on their licensing and record on-line at: http://www.cslb.ca.gov/
- Sub Contractor- These are individual contractors, ie…painting, sheetrock, foundation, windows, roofing, electrical, plumbing. They too, will be registered with the Contractors state license board and will have insurance, bonding and track record available on line. Many DIY’ers choose to manage their own renovation projects and hire the sub contractors individually. These hard working individuals usually know and will refer other contractors they have worked with. You can ask them to quote a bid or estimate by job, or if you are lucky, by time and materials. This is often a way for a fixer owner/user to save a few bucks. The caveat is that you must manage all of the communications, timing and overseeing of each job yourself and detail with each contractor individually. If you have a small job, you will want to check with your sub, as alot of them do not do smaller jobs and you will need to seek a handyman for this type of smaller work.
