The Magic Touch

Lots of Competition

It's clear that investing in a fixer-upper can be frustrating if buyers don't know what they're doing. Every investor would like to find that bargain-priced house that needs just a touch-up -- some cleaning, a few coats of paint -- before it goes back on the market.

The problem is, such simple fixer-uppers may not exist.

"The only people who think there is an easy fixer-upper out there are people who haven't done it before," said Jeff Lyons, general manager of consumer Web site RealEstate.com. "Finding a house that needs only a fresh coat of paint for 50 percent below market value is unrealistic."

The first mistake people searching for fixer-uppers make is thinking that they're unique, that no one else is hunting for the same prize.

They're wrong, especially if they happen to be looking in a hot real estate market.

"The competition for these homes in this area is tough," said Susann Haskins, president of the Greater Capital Area Association of Realtors and co-manager of the Potomac office of Long & Foster Real Estate. "I don't have any reason to believe it is going to be easier in the future than it has been in the past to purchase these properties."

Those who find such houses, though, had better be prepared to act quickly.

"They are a great opportunity to some people," said Peg Scherbarth, district director of ZipRealty in Washington. "To find a house in Arlington close to the D.C. area at a great price that needs some fixing up, [is] a great value for some people. They're going to jump on houses like that when they come on the market."

Competition can turn otherwise smart people into terrible investors. Those who have successfully completed the sometimes stressful process of buying a fixer-upper, renovating it and then selling it for a healthy profit know the possible pitfalls awaiting investors, especially new ones. Most important, they know when to walk away from a fixer-upper that, for whatever reason, is not a good investment opportunity.

Walking away is a skill that new investors sometimes struggle to acquire. It's also one that investors sometimes need to exercise quickly, if the price for a fixer-upper isn't right.

Investors who pay too much for fixer-uppers will struggle to make a profit when it's time to sell. How much is too much depends on the neighborhood.

"Find out what houses in the neighborhood are selling for. Your upside, as far as what you can sell the house for, is limited to what the best house in the neighborhood is worth," said Evan Galen, an architect who works in New York. "Don't try to break through with a new sales record in the neighborhood. You can do it, but it's extremely hard."