If you are relatively handy and do not mind the extra work, buying a fixer-upper could be a great way to save money during the homebuying process. In fact, buying a house that needs work may help you score a home in your ideal location, but be sure the amount of repairs and cost of renovations work for you.
While the process of buying and renovating fixer-upper homes has increased in popularity due to home improvement TV shows, these types of major renovation projects are not for everyone. After all, buying a fixer-upper involves moving into the least desirable home on the block and overseeing its transformation.
So, whether you are considering a fixer-upper as an investment — and you plan to flip it immediately after construction is complete — or you are fixing up a home to make it your own, there is a lot to consider when buying a fixer-upper.
What Is a Fixer-Upper Home?
Fixer-upper homes are houses that are in a livable condition but need some work. The amount of work varies by home and the buyer’s intent, although needed repairs are significant enough to warrant a lower sale price. You should note that fixer-upper homes are often listed “as-is” on the market.
Investors buy fixer-uppers to repair and flip them for a profit, while traditional homebuyers may find that the lower sale price is a bargain, provided they budget for repairs and have some DIY plans.
Things to Consider When Buying a Fixer Upper
With that in mind, here’s what it takes to make the purchase of a fixer-upper pay off.
- Cost Analysis
Each home renovation is unique. If you buy a fixer-upper house, the price of rehabbing it can vary tremendously. One house might need new appliances, the walls painted, and the floors sanded. Another might need a new roof and a cracked foundation fixed and maybe even an electrical upgrade. The size of the home, its age, its location, and condition will all impact how much you will need to spend.
It is imperative that you add up all the costs of potential renovations before you buy a fixer-upper house. You do not want the dream of wanting your own home to cloud your judgment about the work that is needed.
Consider the following:
- Assess the upfront cost of the home and add up all potential material and labor needs —plumbers, electricians, roofers, carpenters, all the way down to any new doorknobs you will buy along the way. Then, subtract that from the home’s renovated market value. Would this still be a profitable venture?
- Remember that inflation is currently running high so prices could get higher than what you believe they will cost during the time you are renovating.
- Allow wiggle room in your budget and your timeline for overages. It is not uncommon for home renovations to cost more and take longer than anticipated.
- Pick Projects That Pay
The ideal fixer-uppers are those that require mostly cosmetic improvements — paint touchups, drywall repairs, floor refinishing — which generally cost much less than what they return in market value. It is essential to understand what work should be done for safety reasons and to prevent costly challenges down the road. The best way to do this is to have a professional assess your newly purchased home and use that insight to develop a game plan.
Hire an inspector to look for potential issues or hazards with electrical, plumbing, and the roof. It is a good idea to start with the structure and take care of items like electrical, which can be a potential fire hazard, as well as plumbing issues so that you don’t end up with major problems or damage in the future. You will not see a great transformation, but it brings peace of mind.
Once you have finished the safety concerns, choose projects that will give you the biggest bang for your buck. Whether you are flipping it or planning on living in it, things like a fresh coat of paint, new flooring, new appliances and some landscaping will be the biggest and most rewarding changes.
- DIY Whenever Possible
One of the things to consider is how much of the work you are able to do yourself. If you love to work on old houses, you are a step ahead. But those with no DIY skills may be locked into overseeing contractors for every renovation. That can cause some headaches and will certainly cost more than if you can do the work yourself.
Fixer-uppers can be a great investment and allow you to customize a home to your specific needs. But it’s best to have a sense of what you’re signing up for! With some strategic due diligence upfront, you can purchase and remodel your new home with confidence.
- Financing
One of the most challenging aspects of buying a fixer-upper is paying for the renovation. Understandably, most people do not typically have much extra cash after making the down payment and paying closing costs, so coming up with additional money to cover repairs or remodeling can be difficult.
A fixer-upper loan may be a good option to buy a house that needs some TLC and pay for the repairs needed to turn it into your dream home. These loans are designed to give you the money you need to buy and renovate the home at the same time. Understanding how the different fixer-upper loans work will help you decide the best way to finance your fixer-upper.
Benefits of Buying a Fixer Upper
Most often, people buy fixer-upper homes because the cost of purchasing the home plus renovation costs may total less than what they’d pay for a comparable home in good condition.
Here are some of the key reasons buyers decide on buying a fixer-upper:
- Reduced price
- Customizable improvements
- Older home charm
- Make a profit
- Tax incentives
What to Look For When Buying a Fixer-Upper
When shopping for a fixer-upper, prioritize the things you cannot change about a home (like its location), or things that would be too costly to change (like significant structural renovations).
Here are key factors to consider:
- Location
Location is always the most important thing to look for with real estate, because it cannot be changed. Look for a fixer-upper in a desirable or an up-and-coming neighborhood in order to maximize potential resale value. Finding the right location will also ensure that you are happy in the home. Pay attention to things that might be important to you, like school ratings, nearby parks and restaurants and commute times.
The home’s location will also play a part in determining your renovation budget and estimating the home’s post-renovation value. The quality of finishes and upgrades you select should be in line with comparable homes in the same neighborhood if your goal is to recoup costs on resale.
- Layout and Size
A logical layout is important in any home, but it’s especially critical when you are looking at an old home. Older homes are often divided into small rooms, but many people in this decade favor an open floor plan. If you envision needing to knock down walls to create a more open, airy interior, know that the job can be expensive, time-consuming and dusty.
- Strong Structural Elements
A solid structure is ideal for any home, but it is especially critical when you are buying a fixer-upper. If the home has a crumbling foundation or serious roof problems, you will have to decide if you are willing to pay to repair this type of damage.
These are the five important structural elements:
- Roof
- Heating, ventilation, and air conditioning (HVAC)
- Plumbing
- Electrical
- Foundation
Find the Right Agent
Buying your house should be a fun and fulfilling experience. If you have done your research and evaluated what you can afford and what you truly need, finding a new home can be exciting. Learning more about the purchase process eliminates the fear of the unknown and lets you search for a home with peace of mind.
Windermere’s community of real estate professionals is our greatest asset. We have experts in all areas of real estate, from your typical starter home to condos, luxury properties, and new construction. While residential real estate is the mainstay of our business, Windermere also has offices and associates who specialize in property management, commercial real estate, and relocation services. To further facilitate the home buying process, Windermere has affiliated partners in certain regions to provide mortgage, title, and escrow services.
Call us today with any questions or concerns. Our professional Real Estate Agents will help you through this exciting process. (951) 369-8002