MAKING SENSE -- August 31, 2012 at 12:20 PM ET
How Best to Leverage Small Savings? Buy, Fix Up, Rent Out?
Creative Commons photo of a 'fixer-upper' home in Boone County, Ill. courtesy flickr user minolta102.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Friday's query comes from a reader at Next Avenue. The NewsHour has partnered with Next Avenue, a new PBS website that offers articles, blogs and other critical information for adults over 50.
My savings interest is so small. I want to use my savings to buy cheap fixer-uppers to renovate and then rent. This I think would give me real property of value as well as income that surpasses the interest gained in a savings account. I am fast approaching retirement and far behind in the funds for it.
I don't know if this is the "best leverage" for your savings, as you put it in the headline to your question. That depends on how good you wind up being at choosing fixer uppers and how cost-effectively you can renovate and rent them. And the vicissitudes of the real estate market will be determinative -- and beyond your control.
What I like about the strategy, though, is its dependence on "sweat equity." As Ben Franklin pointed out, "time is money." (Indeed, he once told me this in person on camera, though you have to watch about half a piece on "The Paradox of Thrift" before he appears.) The key, then, is your time. If you don't have a more productive use for it at the moment than sizing up and then fixing up prospective rental properties, I wholeheartedly approve of your plan. You will be building "equity" -- ownership -- with the sweat of your brow (or wherever your sweat tends to pool).
It so happens I have in-laws in north central Ohio successfully engaged in just the pursuit you propose. Indeed, one beloved wiseacre of a nephew bought a foreclosed fixer-upper within the past month. He paid bottom dollar and it now looks as if he'll be able to get low-interest loans for the materials needed to fix the porch, among other up-fixings. He'll have to live in the property for at least a year, however, the condition for such financing. Bottom line: it appears he won't even need to borrow from his uncle. But he sure will be working hard for awhile.
As usual, look for a second post early this afternoon. But please don't blame us if events or technology make that impossible. Meanwhile, let it be known that this entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.