From: macrakis@osf.org (Stavros Macrakis)
Subject: Re: Help
Organization: OSF Research Institute
Date: 17 Aug 92 12:27:16

In article <Bt4t68.KuF@news.larc.nasa.gov> fuhrmann@avd20.larc.nasa.gov (Henri D. Fuhrmann) writes:

	   I am a first time home buyer and to tell you the truth,  I'm
   a bit scared.  My wife and I are looking for a VA, HUD, or assumable home that
   needs cosmetic repair.  We would like to fix it up and sell it within a year 
   and move up a notch to another home in need of repair.

It sounds like you're a first-time house investor, not simply a
first-time house buyer.  You should be scared.  It's a lot of money.
You are presumably going for a leveraged investment, which means that
price swings are multiplied by your leveraging (proportion of debt
finance).

   We found a few homes that look like they might be good investments
   but the streets they are on are not very appealing. Some of the
   questions I have are pretty basic, but here goes.

   1)Is it always better to buy rather than rent?

No.

     I heard that with a mortgage one is primarily paying off interest.

This is true.

     Is this actually better than rent?

It is, if some combination of the following is true: 1) you will
improve the property (since you'll own the improvements); 2) you are
staying long enough to amortize the one-time costs (agents'
commissions, closing costs, moving costs, etc.); 3) the property goes
up in value; 4) rents are relatively high.

However, 1) most cosmetic improvements do NOT (according to surveys)
make a very large difference in value; 2) 6% agents' commission is a
lot (but perhaps you hope to sell without an agent); 3) what can go up
can also go down; 4) there are large regional variations in the
relationship of rent and financing.

   2)What should one look for in an investment home? Neighborhood?

Potential appreciation is the only thing that matters, right :-).
Lots of things affect that: the quality of the house itself, the
location, etc.

   3)How much can one expect to make on a home that was run down?

Depends.  If all the other houses in the neighborhood are run down,
you can expect to lose money.  If the neighborhood is `improving', you
can make a lot (but what I see in Boston is that many neighborhoods
that were improving are slipping backwards...).

   4)Is fixing up a home with the intention of selling it for more a risky thing?

Yes.

   5)Does it matter from which bank one gets a mortgage from? Why?

Probably not too much, unless you're getting construction financing,
in which case the precise conditions matter a lot.

   6)How long would it take to buy a house,  fix it up, and sell it? one year?

Depends.  In a good case, you can buy a house in a month or so, fix it
up in 3-6 months, and sell it in 1-2 months.  In the worst case, you
can buy a house in a week, fix it up in 3-36 months, and sell it after
12 months on the market....

`Fixing up' is a major project.  Are you planning to do it yourself or
contract it out?

   7)Should I shop around for a realtor or just pick any?

Shop around.  Remember, you are 6% in the hole when you start i.e. to
make back your purchase price, the house has to appreciate by 6%...

	   As you can see I have no experience with real estate. I would greatly
     appreciate any help, advice or anecdotes.

Sounds as though you should stay away.

	-s