Fixer Upper Nomad FAQs
The following are FAQs related to the less common Fixer Upper Nomad model. Some individual FAQs may appear in more than one list if they cover a topic that would be categorized in more than one.
What is Fixer Upper Nomad?
Fixer Upper Nomad is the Nomad investing model except you're looking for properties that need work. You buy the properties that need work, fix them up as you live in them and then in many cases convert them to lease option exits. There are a couple variations of the model where you don't need to do the lease option exit as well.
The Fixer Upper Nomad model usually combines the Lease Option Exit Nomad model with buying fixer upper properties that you can do some work on to capture some sweat equity.
I thought you didn't recommend buying fixer uppers with Nomad?
In the past I typically did not recommend that people buy properties that need work when doing the Nomad model. If you were looking to buy a property and minimize the amount of money that you had invested in the deal, then finding properties that you could buy with a small down payment (like we teach with Nomad) but then having to put additional money into the property to do fix up did not make a lot of sense.
In those cases you were often putting more into repairs on the property than you had initially invested to buy the property. This increased your investment when calculating Return On Investing (ROI) and went against the spirit of the Nomad model.
However, in the time since I used to not recommend it, I found a way to make the model work. Instead of keeping the properties long term like we typically suggest with the plain vanilla Nomad model and keeping the extra repair money captive in the property, we recommend you sell the properties using the lease option exit model of Nomad.
Do I need special financing to do Fixer Upper Nomad?
Maybe, but probably not.
If the property can qualify for the same type of financing that we'd normally recommend for Nomad, I'd suggest still getting that type of financing. In other words: VA, USDA, FHA or, most commonly conventional financing.
However, there are some special financing programs that might work will this model: FHA 203K loan program allows you to borrow money to purchase the property plus borrow the money to do repairs on the property. In most cases, you won't be able to do the work yourself (you'd need to have a contractor do it), but it might be a way to have some major updates/repairs done to improve the value of the property. And, if you're going to do the FHA 203K loan program you might not need to do the lease option exit. But remember, you can typically only do 1 FHA loan at a time (with some rare exceptions). So, you're not likely to be able to repeat this process and acquire 10 properties using this loan program as a strategy.
There is also a conventional version of the FHA 203K loan program that allows you to borrow repair money as well. You might be able to repeat this loan several times. So, it is possible you could reuse this.
For most Fixer Upper Nomads though they'll be using just the traditional conventional financing and not borrowing the money to do repairs. They'll be funding those as additional out of pocket expenses. These additional out of pocket expenses are why we are recommending that people use lease option exits… to be able to get that money back out relatively quickly and then use that sweat equity they've built up to acquire more rental properties.
Do I need to sell the properties I do Fixer Upper Nomad with?
In many cases, you will want to sell the properties so you're not leaving a lot of extra money invested in the properties.
If you could find a way to not leave the money in the deal, then you might not need to sell. There are several ways to avoid having to leave the extra fix up money invested in the property. One is to use special loan programs that will finance most (if not all) of the repairs to start with. Another would be to refinance the property after the repairs are done to pull cash out.
Do I have to move into the Fixer Uppers?
In our modeling of the Fixer Upper Nomad, you are moving into the properties. If you wanted to buy a property to fix up and then keep as a rental or resell to capture the sweat equity, it would not be the Nomad plan. It would be more traditional real estate investing.
How big of a discount do I need to buy at for Fixer Upper Nomad?
For the Fixer Upper Nomad model, the bigger the discount you can buy at the better.
For the traditional Nomad model, you don't need to buy at a discount at all for the model to work. But with the Fixer Upper Nomad model, you will be rewarded for buying properties at a discount and the bigger the discount the better.
You do not need to buy the property at a certain percentage discount, but make sure that you are being compensated with some sweat equity when you buy a property beyond just the cost of the updates and fix up you do. In other words, don't buy a property at a $20,000 discount and have to put $20,000 work into it. In that case, you'd be better off just buying a property that is totally fixed up and pay full price.
You can do Fixer Upper Nomad and use smaller margins than if you were looking for a property to immediately buy, fix up and then resell (what some people might call fix and flip).
Why doesn't everyone do Fixer Upper Nomad?
Fixer Upper Nomad is a more active investing strategy and suggests that you do some fix up work yourself or hire it out. Many people don't want the extra hassle. Many Nomads have jobs and are not interested in another part-time job on their evenings and weekends fixing up houses.
Can I do the work myself for Fixer Upper Nomad?
In most cases you can do the work yourself with the Fixer Upper Nomad model. The big exception will probably be when you get FHA 203K financing that requires a licensed contractor do the work.
Should I use Hard Money Loans for Fixer Upper Nomad?
It is extremely unlikely that you'd ever do a Fixer Upper Nomad property with a hard money loan. The extremely rare exception would be a property that you could not get traditional financing or fixer upper financing on. And, in those unusually rare cases you probably are not going to be moving into a property that you got a hard money loan on. Most hard money lenders are not willing to make “consumer”, owner occupied loans. They are almost exclusively making commercial loans where their buyer is not living in the property they are fixing up.
Does Fixer Upper Nomad speed up the Nomad process?
It can, but not up front.
The way that I lay out the Fixer Upper Nomad model is that you buy a home where you can do some work to capture some sweat equity and live in the property for a year before buying your next fixer upper property. Instead of selling the first property traditionally at the end of year 1, we're recommending that you sell the property on a lease option to a tenant buyer to eliminate much of the transactions costs of selling. The lease option exit may take several years to complete however, so you may not see the proceeds of your fixer upper for 4 years.
The money that you put into the property is tied up in the deal for that time. If it could be 4 years for you to get out of your fixer upper property, it is hard to imagine that doing fixer uppers will speed up the Nomad process.
On the other hand, when you do sell your fixer upper property, you'll presumably be netting considerably more than if you just did a typical Nomad property and did a similar lease option exit. This may allow you to take the proceeds and buy another rental property with 20% down (that you don't have to move into). In that way, if you buy a 20% down property AND your regular Nomad property for that year, it could speed up the process a little.
In general, I would not consider the Fixer Upper Nomad to be a “faster” model.
Can I do more than one Fixer Upper per year?
Yes, but it typically would not be as a Nomad. Remember that the Nomad model has you move into the property, so the other fixer uppers you might do are more traditional real estate investing with 20% (or more down) or using hard money loans where you are not moving into the property.
Should I borrow repair money on a credit card?
Some people might want to finance the repairs they want to do on the property on a credit card. I don't typically recommend this since you'll be carrying this balance for several years while you wait for your tenant buyer to buy the property.
Plus, borrowing money on your credit card will increase your debt to income ratio and limit your ability to get future loans for buying future Nomad properties.
What level of fixer upper should I be looking for?
I would think that most Fixer Upper Nomads would be looking for basic cosmetic fixes that can do to add value to a property. Things like paint, carpet and maybe a light kitchen or bathroom update. Some handy Nomads might be tempted to take on larger projects which can often have bigger sweat equity opportunities. These more substantial projects can, in some cases, limit your ability to get financing on the properties.