Fixer-Uppers vs. Knock-‘Em-Downers

Question: One of my old high school friends now makes a living flipping houses. It’s a pretty cool way to make cash, if you ask me: he gets to work with his hands and transform old properties into really awesome houses. But he’s all on his own, so the financial risk isn’t exactly spread around–so maybe that’s why he wants me to get in on it, too.

My fear, though, is that one day he’ll invest in a house (or more than one) that just can’t be saved. He can do a lot, and he’s smart enough to hire contractors to do what he can’t, but it’s not like all old houses are salvageable, right? I’m concerned about putting my money into a risky business, and it seems to me that there’s a risk that my friend may one day be stuck with a house that’s truly beyond repair and just needs to be knocked down, or something. Am I way off base?

Answer: You’re not way off-base, experts say: there is such a thing as a house that cannot be saved. With that said, though, there are ways for your friend to check for critical issues before he buys a property.

When it comes to flipping houses, the obvious key is to make sure that you make a profit. And, clearly, many people are: home flipping hit a ten-year high in 2016. Making a profit, of course, requires the purchase cost plus the repair costs to come to less than the price the flipper eventually sells the home for.

So there is such a thing as an unflippable house. If a house is unstable or unsafe, for instance, its structural issues may not be worth fixing–it could be cheaper to knock it down and just sell the property. Foundation issues are one type of problem that can be fatal to a home, say CNT foundations, a group of foundation repair authorities in Columbia South Carolina, but they also stress that there are many cases in which foundation repairs can save old properties and be a cost-effective part of flipping or restoring a home.

And many other repairs are, of course, a whole lot easier to do. The New York doors and windows designers at Pella’s New York regional branch point out that replacing things like windows and doors can vastly improve the look of a home while cutting down on drafts and other energy-sapping issues. Key repairs can blend vital fixes with aesthetic improvements and can boost the value of a house quickly. Your friend, of course, already knows this. But can he tell whether a home needs only these sorts of repairs, or is he at risk of buying a doomed home?

There’s no such thing as a business with no risk, but you can be relatively confident that your friend will be well-informed when buying a property. There are laws on the books that dictate certain disclosures on the part of the seller, and if something important is hidden from your friend during the homebuying process, he may be able to bring legal options against the previous owners. He can also protect himself by insisting on a home inspection–while not legally required in most cases, such inspections are very typical in real estate deals.

So your friend will almost certainly have the information he needs to make a smart purchase. If you trust him to interpret that information properly, you can assume that his odds of acquiring an unfixable house are very, very slim.

“The most expensive hobby a rich man could have is a boat, and the second most expensive hobby he could have is a very old house.” — Barbara Corcoran