Purchasing a run-down house, then fixing it up to be a desirable home or
rental is a type of conversion. Let's say you purchase a house for $75,000 with
a down payment of $5,000. Yu know that after replacing the carpet and applying a
fresh coat of paint inside and out, you can sell this property on installment
for $90,000. Thus, figuring about $2,000 in renovation and selling costs, you
earned about $13,000 in the markup over the purchase price.
But that's only part of the good news. If you can purchase the property by
taking over existing low-interest financing, you can increase your profits
further with a wraparound loan. This is the essence of the fixer-upper
conversion. Not only do you convert an undesirable house into a desirable home,
you also use a wraparound loan to gain on the spread in rates of interest.
In a fixer-upper conversion, you will have to decide whether to do the
repairs yourself or to hire the job out every time you buy a fixer-upper. That
decision depends on whether you are a handy person and whether or not you have
adequate fix-up money to pay for professional labor. If you have plenty of cash
and can't spare the time to do it yourself, then hire the work out. But, if
you're like us, always scraping for a buck and wanting to earn some "sweat
equity,:, then you would be wise to do most of work with your capabilities your
self.
Condo Conversion.
To convert an apartment buildings into individual condominium units, you
ideally should purchase the apartments inexpensively enough so that each unit
will easily convert to a salable condo. Because of legal procedures and
incidental costs to convert, not to mention the time and effort required, use a
two-to-one rule of thumb. This means that sales price of the converted condo
should be at least twice that of the per-unit purchase price of the apartment
buildings. For example, if the purchase price of the apartment buildings is
40,000 per unit, then the sales price of each individual condo must be at least
$80,000. The two-to-one markup is necessary to absorb the incidental cost
incurred, plus the time and effort necessary to make such conversion.
Before going ahead with plans for condo conversion, analyze the local area to
determine what comparable condos are selling for. If you can purchase an
apartment building at a low enough price, and can renovate and sell the
converted units at a profit that covers the time and cost to convert, then by
all means go ahead with your plan.
