Mike Goodnol, manager of Pacific Lumber in Pacifica CA, recently went looking for a larger home for his wife and two daughters only to decide to stay put and add onto his home.

He found 30- to 40-year old homes listing for about $300,000, but they required $50,000 or more in upgrades and renovations. To add what he needed to his existing home, he'd be out only $20,000 or $30,000.

"Some have no insulation, there's mildew in the bathrooms, single-glazed windows, no ventilation in the bathrooms, cracked driveways and water problems in the basement," Goodnol said.

Americans are expected to spend a record $130.6 billion in home improvements, maintenance and repairs this year, according to the National Association of Home Builders and, too often, the cash is being dumped into money pits.

In many fast-appreciating sellers' markets around the nation, so-called "fixer-uppers" are homes with functionally obsolete systems, they are plagued with deferred maintenance and many of their systems are at the end of their useful life cycle.

"People are selling dumps for $250,000 to $300,000 and in one I inspected you'd have to spend $80,000 and you still wouldn't have enough to do the roof,'' said Tim Perry, a general contractor in Montara, CA and author of "The Book of Home Purchase" (Bergamo Publications, $19.95).

A walk-through check list of red flags and associated cost estimates, the book forces buyers to take off the rose-colored glasses and put their emotions aside to see a house for what it's really going to cost in upgrades and renovations, as well as the purchase price.

Because America's aging housing stock yields so many homes in various stages of disrepair and obsolescence, savvy buyers should take the following steps when buying a fixer-upper:

• Buy the neighborhood eyesore. Upgrade the worst house in the best neighborhood, and the neighborhood will help support the value of the fixer-upper and the return on your money. Don't over-renovate to the point of diminishing returns. Hanley-Wood's Remodeling OnLine offers the "1998 Cost vs. Value Report" with the costs and paybacks of many remodeling projects in 60 cities.
• Buy in a hot market. Appreciation helps offset the cost of your improvements.
• Involve inspectors. A general inspection of the home, from the crawl space to the roof top, should be part of any home purchase. Depending on your location, also consider a soils inspection, structural pest damage inspection, roof inspection and a seismic safety once-over, among others.
• Be sure the inspector generates a narrative report rather than a checklist. It's a conflict of interest if the inspector also offers to do the work. "It's very important to be there during the inspection to learn first-hand about the condition of the home," said Ray Brown, co-author of "Home Buying for Dummies" (IDG Books, $16.99, )
• Inspect the general contractor. Screen general contractors to be sure they are licensed, but not facing numerous consumer complaints. With so many clients to serve in hot markets, even premier general contractors aren't up to snuff if they work quickly to move on to the next job and leave problems behind. Also make sure the contractor you choose is insured and financially stable.

"The best way to choose a contractor is to see some of the work they've done and talk to people who have had experience with them and then research the contractor," said Bill Crosby, vice president and editorial director of Palo Alto, CA-based ImproveNet, an online referral service that helps home owners check out contractors' backgrounds.

Remodeling Online offers an extensive contractor selection procedure in "How To Find The Contractor You Want".

Buy a fixer-upper by the numbers. Jack Reed, editor of Real Estate Investors Monthly in Alamo, CA says if you buy a fixer-upper expecting a return on your money, you should recover $2 for every $1 you spend.

If you are buying the home as shelter but don't want to lose money fixing it up, calculate every dime -- purchasing costs, maintenance, future selling costs, building materials, labor, financing costs and your valuable time invested in the project.

FIXER-UPPER RESOURCES

Trade Groups for Home Improvements:
Trade groups offer referral services and consumer information and assistance for your home improvements, renovations and upgrade work.

• American Institute of Architects' (AIA) Online Consumer Guide.
• American Society of Home Inspectors (ASHI)
• National Association of the Remodeling Industry (NARI)

Home Improvement Web sites

• Home Ideas offers the best collection of online cost estimators for painting, carpeting, wallpaper, tile, insulation, board feet, wallboard, concrete, etc.
• HomeTime is the Internet's version of 11-year-old Public Broadcasting Network's how-to show. It offers feature stories and information on home improvements, remodeling,construction and repair.
• HouseNet's award-winning home improvement hobbyists Gene and Katie Hamilton from Annapolis, Md., wrote the book on home improvements: "Home Improvement for Dummies" (IDG Books, $19.99).
• ImproveNet helps you select general contractors and offers an online magazine, product and materials shopping assistance and ideas from architects and designers.

Published: August 20, 1998

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