One of the most profitable ways to get into the Marin real estate market is to buy a fixer upper property. This can mean anything from a total dump that borders on “tear down” or just an older home in original condition that just needs freshening up. You can be a first time buyer stretching to get into a good neighborhood, or a seasoned investor looking to add to your early-retirement portfolio. Either way, I’ve had dozens of clients make the leap into the fixer upper business. Some have done it once, moved into the house and are quite satisfied with their one result. Others have gotten bitten by the bug (literally in some cases, depending on the condition of the house) and continue to refinance and buy one every few years, adding to real estate portfolios worth into the millions. Homes that need work of any kind can be a great investment in Marin, providing you’re careful, do your homework, some planning and do a good job. The following information is intended to help you with not only your decision about whether or not to jump into the fixer upper world, but what to do if you feel this is the thing for you. There are whole books written on this subject and this is only intended as an overview into what can be a very involved process.

If you’re brand new to the fixer upper business, I have two words for you: be careful.  It’s easy to make mistakes, either by under improving the house and turning no profit, or overbuilding for the neighborhood and going “upside down” by spending more on the home than the home is now worth on the open market.  These pitfalls can be avoided.  While there are no guaranteed returns on any speculative investment, if you’re careful and watch your costs, you can not only profit handsomely and quickly build a seven figure net worth, you can do it all tax free.  I’ve been involved with fixers since I bought my first dump in 1985 and got bit by many bugs myself.  But just know:  Embarking on a real estate project of any kind is a process, not an event, involving many hours of consultation, brainstorming, creativity and good old fashion know how.  Even if you’re an experienced builder, the first step in your process should be to speak with an agent specializing in fixers to start the process.  No, you don’t have to choose me.  There are a handful of good agents in Marin that know fixer uppers as well as I do, all of whom would do a good job for you.  What I can offer over most of them is a genuine love of the game.  I enjoy nothing more than helping a client turn something nobody wants into something everybody wants.  It’s not all about profiting from sales commissions either.  In fact, it’s probably a break even for me if I were to add up the hours I spend at the house before, during and after the project is done and one of the reasons many agents stay away from fixers.  Also, as you’ll see once you read on, I usually suggest you rent or move into your fixer rather than sell it.  Quite often, that can work out great for you.

The sign of a good fixer: Gas masks have to be worn while showing the house. Hundreds of potential buyers saw this home (see below) and walked out immediately due to the musty smell. I brought my client George Lang to it, along with a box of gas masks.  He bought this older Tudor for $525,000 which, as always,was more than he wanted to spend.  After some good planning and careful budgeting, four months later, it was worth $800,000!

• Never Buy a Fixer in an Area You Wouldn’t Live in Yourself. What locations work the best? It’s too involved to answer here, but in a nutshell, if you wouldn’t live there, don’t buy it. If the market changes unexpectedly or your living situation changes, you may have to live there. There’s nothing wrong then with designing your project with an eye for your own taste, provided it’s keeping with the market.
  

• Never Buy Any Home More Than 15 Minutes From Where You Live.
  Sounds simple, I know, but I strongly advise you against buying in a "much cheaper area" two hours away, or up in Oregon. This investment isn't a mutual fund that you put money into, then just ignore. You'll want to not only manage your fix up project, but you'll want to keep an eye on it when you rent it (more on that later). If you're putting thousands of dollars into time on the road and gas for your car, you're eating away at your profits.

• Never Buy Any Home More Than 15 Minutes From a Home Depot. Of course, it could be any major hardware store, but you'll be amazed at how many times you go there during your fix up and how many times you'll go during the life of your rental. It's all about your valuable time.
  

• Buy a Special Property. If you’re in a condo building, buy the top floor end unit that’s in the worst condition. If you’re on a hillside, buy the worst looking house with the best view, or a long private driveway. Buy a house with the potential to have some level land. People love to have a view home with a small lawn. Buy the house with the biggest level yard in the area, the worst house in a great neighborhood or the cheapest home in the whole town. Either way, give yourself something to brag about when you tell your friends what you bought. Your buyers will do the same thing when they buy the house from you.
  

• Write the Ad for the “After” Picture. When you’ve decided on a potential home, make a mental note of what a magazine ad may read like after you’ve completed your project. “Gorgeous, newly remodeled four bedroom, two bath home on a sunny, level lot at the end of a cul de sac. Fully fenced yard, close to shopping, schools and downtown. Looks like a new home. Priced to sell at: $_ _ _,_ _ _.” Sound enticing? It does to me and hopefully it will to your buyer. 
  

• The Least Expensive Home in the Neighborhood. This is an old concept and certainly not mine, but it does work. You may not find the absolute cheapest house in the area, but you can get pretty close. A good rule of thumb is to do this: After you find a house you’re interested in, stand in the middle of the street and—wait, first check to make sure no cars are coming. Then, stand in the middle of the street and do a slow, full turn around. If most of the houses you can see are in better shape than yours, you’ve got a contender. Also, what are the yards like and what kind of cars are in the driveways around you? Are the lawns pretty well kept and are the cars of a recent vintage? Or are the weeds overgrown and are there trucks up on racks missing their engines? Pretty simple, but you’d be surprised at how many people don’t open their eyes and look around them.
  

• Built 1950 – 1968. Here’s why these are my favorite vintage houses. In 1950, they discovered reinforced concrete for foundations (using rebar), adding additional strength. Concrete was cheap, so many of the 1950’s homes have massive, overbuilt foundations showing no signs of cracks or wear, let alone any slipping or settling. Into the 60’s, they continued with the good foundations, but added grounded electrical wiring (also called 3 wire) and copper plumbing. The 60’s was also the decade of the California Ranch Home, a one story, 3 br/ 2 ba house of approximately 1650 square foot. They had large living rooms, a two car garage and were mostly built on level lots. People snapped them up like free cookies. Ironically, this is exactly what many buyers still look for today, though without the avocado green appliances and orange shag carpet. This is exactly what you should look for in a fixer. Find yourself an old Rancher in tired condition. Fix it up and rent it. You’ll be on your way to making a small fortune (or large one) in Marin County. Try for the one story homes if you can, (but don’t shy away from the two-story models). Homes on one floor will appreciate more in the future as the Baby Boomers age and don’t want to climb steps. That swath of the population turned fifty-seven in 2003, the first year of the government’s retirement guideline. I also predict that level land will become more and more valuable in the future, so find a beater house with some level land or a place to create some yard of any kind.
  

• Good Bones. My friend Pete is a foundation contractor. A few months ago, he was on the 6:00 news because he uncovered a lot of human bones underneath an old, historic house in Mill Valley. Turns out, the house had been built on top of a private family cemetery for one of the founding families of the town. While this is a great story, this isn’t what I’m talking about with “good bones”. It’s a well-worn phrase that means the house is basically solid, including a decent floor plan, straight walls, not a lot of dry rot or termite work and a foundation without any human remains underneath. It may be the ugliest house in the world with broken windows and such a bad smell you need gas masks to go inside (see photo above). As long as the basics are in good shape, it could be an easy fixer for you. As a rule, a fixer should take you from three to twelve months to fix up and either rent or resell. Any less than that and it probably didn’t need enough work. Any more than that and it probably needed too much. You’ll find most of the Ranchers have good bones and make for great fixers.

Obviously, every seller wants the best price for their house, fixer upper or not, just as you’re going to want to get the highest and best price once it comes time to sell. But one of the biggest mistakes buyers often make is being too price conscious. If they can’t buy the house at “a bargain”, they pass, only to see someone else pay fair market value and go on to make a nice profit after doing their fix up. Let’s face it, the days of the “good deals” are in the past, literally. I’ve watched in sad dismay as talented fix up buyers or good builders refuse to make an offer on a well-located fixer simply because they “remember when they could have bought that house for [$_ _ _, 000] just two years ago”. And I recently heard of a talented builder who wrestled with going forward on a house over just $1,500 on a Counter Offer. He dragged his feet, hoping the seller would bend. The next day, he ended up losing the house to another builder who paid $40,000 more, fixed it up and made a profit of $175,000. Like every buyer since I’ve been in the business, the builder paid more than he wanted to, but he had a good agent and had confidence in his abilities and the market. So if you feel like you’re not getting a good price on the home you’re looking at, everybody feels that way. In fact, when I look back on the hundreds of homes I’ve helped people buy, not one of them has ever felt like they got a good deal at the time they were buying it. Of course, after a few months they start feeling a little better. After six months or a year, they feel like they got a great deal. Check out the average selling price chart for Marin County.

Folks, I got news for you, real estate is likely to keep going up in Marin County. Our average is around 7% per year since they started keeping track in 1952 and the average house in Marin  traditionally has doubled in value every 8 years or so (see chart above). In fact, the average home has never gone down in value since they started keeping track in 1952. except for these last few years. We have no more available land and are a no-growth county. Now, I’m no economist and I’m not that good at math, but I’d say it’s a pretty safe bet that our real estate is going to continue to go up. As more people discover the quality of life we have with great schools, no smog, no crime and no real traffic, I doubt you’ll see less than around 5-7% appreciation, going forward, even in a bad year. This is for the average home, mind you, but I suggest you stick with the average homes for your fixer upper. So while it might be painful to “pay these outrageous prices”, if you don’t, someone else will and you’ll just be paying more next year. What you’re buying with a fixer upper is an opportunity to make money. How much you make depends on the job you do. But in Marin, it’s generally not a question of “if”, but “how much”. If you’re careful and watch what you spend, you can do pretty well.

This is the hundred thousand dollar question. Be smart with your budget, and it could add $100,000 to your profit. You’ve already decided to buy a special piece of property with good bones in a good location and you’ve already committed to a price. Now what?

• Squeeze Every Last Nickel. This is where a longtime, local agent can be invaluable. Talk to him or her at length about what the top of the market is for the area your project is in, then shoot for something just below that. You never want to be the most expensive home, but it’s okay to be darn close. Also, what are buyers looking for in that area? In southern Marin, where square footage is a premium, it’s not unusual to see garages converted into family rooms. That’s because the living space is more valuable than the car space. If you have the option, you may want to research converting an existing garage, especially if another one (or carport) can be built somewhere else on the property. Garages are cheap to build as they generally have slab floors, no plumbing, minimal wiring and no insulation. But when it comes to garage conversions, opening floor plans or putting in French doors versus sliders, talk to your agent first and find out what today’s buyer is looking for. If they’re in the market everyday, they should know what will bring you top dollar.

Should You Rent It? Believe it or not, my first choice usually is to rent out your fixer after you’re done. That’s the safe bet and should always factor into your fix up material choices and planning decisions. If for some reason the market changes, you’ll be ready to cover yourself and protect your investment by getting a quality tenant in there who will make your payments and take care of the house for you. Don’t worry about tenants trashing the place. If you’re careful, it’s easy to find good quality tenants in Marin and the way the market appreciates here, your house will be worth an extra $100,000 in no time. Then, when you decide the time is right to sell it, you can do a 1031 Tax Deferred Exchange and not pay any tax on your nice profit. That’s something your agent should also help you with when you’re ready.

Should You Sell? If you decide to sell, you hopefully feel okay by now on the price you paid and your project went more or less to plan. Or, you added some square footage and made a dramatic impact on the house value, otherwise the market may not support your new asking price. You’ll want to factor in the state of the market when you explore selling. Not only how many other homes you’ll be competing with, but what time of year it is and what the buyer activity is like. Marin is pretty much a twelve-month market, but like the rest of the country, there are more buyers out there in spring and summer than in the fall and winter. Your agent should help you figure out all these things. If you don’t know of anyone with fixer upper experience who is full-time, you can always call me. Anything I can do to make your project a smooth and successful one, don’t hesitate to ask.