Expert: Connie Wildasinn-Broker,GRI,Realtor® - 8/22/2008

Question
hello.  my husband and i just bought his grandfathers house for $7,000.  the house needs work and isnt in the greastest area (calumet city, il).  but for $7,000 we figured we HAVE to be able to make some money off of it.  we have a few people telling us it was a mistake because of the market right now.  we plan to sell to one of those companies that buy run-down houses and fix them up, because of all the work it needs.  we dont know enough about renovating a home to do the work ourselves.  (it needs new electric throughout the house, new roof, new drywall, etc.)  so do you think it will be a good investment?  thanks for any advice you have :)

Answer
Hi Nina,

There seems to be a couple of different items in the question.  I am not familiar with the Calument City, IL area, so I do not know what a 'fixed up' home would sell for.  A typical rule of thumb is $.50 on the dollar for a major fix, assuming no foundation work.  Electrical, Plumbing, Drywall, even New roofs, are for the most part, to someone who does fixers a simple matter to replace/repair.  
In the Long Beach area of California where I sell, we have very old homes, many with ordinal fixtures to them.  As they say "for money anything can be fixed".  If you sell for a profit, now, the question is what was my ROI - Return on Investment? If you came out ahead with money left over for you, and did better after all closing and holding costs than you could have investing the money somewhere else, then "yes" you did good.  If in the end you only made 2% on your investment, after you figure in inflation, holding fee, realtor fees, and time taken to complete the transaction, you did not do so well.  But I also look at each property as a learning curve.  You will not 'win' on all investment properties, one reason I am adamant in my business that when people by their primary residence, it is 'NOT' an investment, an 'Investment' is an 'Investment'! And just as you would not purchase stock to loose money, we don't buy real estate to loose money either.  

Turn the property as fast as possible, get all the money you can out of it as fast as possible and then try to do it again.  Now you are investing in the real estate game.

Good luck

P.S. Be sure to speak with a local realtor, get the repaired price (to show investors where the value could be) and 'as-is' pricing for the current sale, then take 5-10% off to get it under market value and SOLD!