When you hear the phrase fixer-upper, what comes to mind? The success of numerous home design shows has led people to begin buying properties that require a bit of elbow grease to get the best bang for their buck. If this sounds like you, you will want to learn whether the opportunities outweigh the risks before buying a fixer-upper home.
While it is a significant undertaking, this path provides numerous opportunities for new homeowners. Fixer-uppers are often priced below market value and offer high returns on investments (ROI) once renovations are complete. Also, many of these houses have historical significance or unique details that add character to the property. Whatever your reasons for looking to purchase a fixer-upper home, there are several issues that must be considered before signing on the dotted line.
If you are intrigued, you will want to take a longer look at this article to determine if buying a fixer-upper home is the right choice for you.
Why do you want to buy a fixer-upper property? People have many motivators, but some cause them to put on blinders during the housing search. If you have watched a lot of HGTV and dream of becoming the next Joanna Gaines, you may be in for a shock. Reality television has a way of glossing over the unexpected expenses and jumping right to the beautifully finished property. In the real world, buying a fixer-upper rarely goes according to plan.
If you choose to invest in a home that requires repairs, you will need to enter into the arrangement with your eyes wide open. Individuals looking to buy a starter home they will eventually resell need to consider the potential ROI for their decision, while someone buying their forever home may focus more on finding the perfect location.
When you are evaluating your motivations, you will need to consider more than property potential. You should also think about how much time and money you will truly have to invest in this new house. If you lack construction knowledge and intend to hire a contractor, the costs may turn out to be higher than if you were buying a turnkey home. Even with help, you’ll still need to be available to answer questions and approve design decisions.
Buying and remodeling a fixer-upper is a journey that requires patience. You will likely have many highs and lows, but ultimately it is your chance to get the home of your dreams.
When buying a house, you will need to be honest about how much you have budgeted. Outside of paying for the deposit and closing costs, a fixer-upper will require you to spend more money on future repairs. Depending on the severity of the problems, you may need to fix those issues soon after buying. With this in mind, you should only view properties within your budget.
Outside of your savings and income, many people qualify for loans that help cover the costs. To gain a more accurate understanding of how much house you can afford, plan to meet with a lender before starting your search. Remember, you will have other expenses after buying the property, so you do not want your repayment plan to be more than you can afford.
Unlike purchasing a home that can be moved into immediately, a fixer-upper will require more than just figuring if the monthly mortgage payment can be made.
Inspect it – While any home should be inspected prior to making an offer, the fixer-upper home should be looked at with an eye toward estimating how much the repairs will cost. Make sure to include materials and labor, and remember to include extra in your budget for unforeseen events.
The offer – Take the improvement estimate and subtract it from the home’s likely market value based on renovations and real estate values in the neighborhood. Knock off another 5%-10% for improvements that will be made along the way.
Knowing the extent of the repairs is important, but so is whether they are within the skill set of the new owners or if someone else will have to be hired to perform them. If a professional is hired, that will make the renovations more expensive.
Basic repairs – Some of these can be performed by those with little experience. Examples include painting, stripping wall paper and patching walls; refinishing floors or laying carpet and tile; changing doors; and installing ceiling fans or light fixtures. There are many books and online sources that can help someone with basic home repairs. Some of the larger home improvement stores also offer one-day classes for free.
Harder repairs – More experience will be necessary for repairs such as replacing heating and air conditioning systems; replacing electrical wiring; and complete kitchen or bathroom remodels.
Completely avoid – Most real estate experts recommend completely avoiding any home that has significant structural problems. These can be very expensive, often go unnoticed by others because they are internal and rarely add enough value to the home to offset the cost. These include complete electrical and plumbing overhauls, foundation upgrades and extensive roof and wall work.
You can alter many things when it comes to fixer-uppers, but you can not change the location. As you search the housing market, concentrate on finding the worst houses in the best neighborhoods. These fixer-uppers will have a low initial cost but a high rate of return. Plus, the most sought-after areas often have desirable amenities nearby that you can enjoy.
When evaluating the location, you will want to consider the distance from the property to places like:
Understanding the commute times will help you determine if it is the best place for you and your family. Long distances may be a deal-breaker if you have to traverse between locations each day.
You should also consider the demographics for the area — is it full of families or business professionals? It is best to choose a location that matches your lifestyle so you can meet like-minded people. Plus, if you have young children, you will want to live in an area where kids can play safely.
With any fixer-upper, you need to take the time to evaluate the property. An initial glance may alert you to basic problems, but it may require a closer inspection to gauge whether the home is right for you. You should search for special details and things that might make it worth your time and money. Additionally, it’s worthwhile to begin estimating how much you’d likely need to spend on repairs.
If a house is at the top of your budget and requires extensive upgrades, you will likely need to consider another option unless you can negotiate. Ultimately, evaluating a property requires you to get your hands dirty and truly inspect all areas. You also need to consider the neighborhood since a unique house in a bad area may not satisfy your needs.
Buying a fixer-upper is a lot like treasure hunting because you never know what you will find once you start tearing up the floors and walls. Many homeowners discover shiplap and windows beneath layers of drywall. Sometimes, they even discover old time capsules hidden in the walls.
It is also common for renovators to discover hardwood floors under carpeting in older homes. Since hardwood can last for decades, finding something like this can save you thousands of dollars. Plus, it offers a unique characteristic you might not have found in another home. When viewing a property, it’s always good to check under the carpeting if possible.
Alternatively, you may find a poorly maintained subfloor that will need replacing. Noticing these details during your initial walk-through can save you time when it comes to your search. When you eliminate houses that are more work than they’re worth, you will be able to speed up the selection process.
It’s easy to get caught up in the excitement of the house-hunting experience. To see a home’s true potential, you’ll need to embrace your creativity and utilize your imagination to look past the disarray. However, it’s still important to look for red flags as you tour each property. While it’s normal to find outdated designs, structural problems and foundational cracks are serious projects that can wreck your renovation budget. Outdated plumbing and electrical can also be costly to repair.
Outside of the house itself, you should evaluate the surrounding area for signs of trouble. Vandalism and a high crime rate are two factors to research before deciding on a home. With that in mind, it’s best to avoid houses with red flags unless you’re enamored by the property and location.
Ultimately, with any renovation, you’ll need to expect the unexpected. As most renovators will tell you, things rarely go according to plan. If you anticipate delays and expenses, you’ll be prepared to handle whatever comes your way. If anything, you’ll discover you have more money left over to put toward high-end upgrades or future changes.
Fixer-uppers are unlike turnkey properties, so you shouldn’t go into the situation expecting everything to go according to plan. You’ll likely be dealing with a house that is decades— if not centuries — old and has appliances and materials to match.
When buying any home, you need to know where your priorities lie. While most things are possible if you have enough money, renovating a floor layout or building an addition can quickly push you over budget. It’s best to look for houses that already have your wish list items or, at the very least, the square footage that guarantees enough room for alterations.
If you are buying with your family or a partner, you should also know their must-haves to ensure everyone is satisfied when making an offer. If you’re designing your dream home, you should prioritize which features deserve the majority of your budget or will require instant repair. Remember, if you fall in love with a house, you can always make changes gradually as you build savings.
When most people decide to buy a fixer-upper, they intend to complete some of the work themselves. Therefore, while viewing a property, you should consider how much work is within your skill set versus how many projects you would need to contract to a professional. You should be honest when assessing your abilities. YouTube offers many in-depth DIY lessons, but you’ll likely need to leave some tasks to the professionals.
Remember, if completed incorrectly, some home systems can be dangerous. You should always consult an expert if you are uncertain. After assessing your skills, you can determine what projects you’re likely to complete on your own, which will allow you to start making a personal remodeling budget. While you can save money by not hiring a professional, you will need to pay for materials and equipment.
While you can use online resources to assess what the repairs will cost, it is best to consult a contractor. A professional will evaluate the space and your goals and offer you an overview of the work needed to complete your dream home. They will also be able to give you a general estimate for how much your projects will cost.
While the pricing is not written in stone, you can use it as a general guide to estimate whether the repairs will be too expensive. The contractor may also be able to point out signs you may not have noticed before. While you should still plan on having an inspector view the property, it is useful to have a professional walk you through what to expect. Personally, if I was buying a fixer-upper home, I would want a trusted contractor to take a look and provide both their advice and opinion.
To get the best deals, you’ll need to shop around. This ranges from furniture and materials to contractors and houses. While it’s important to get a good deal, you do not want to receive poor-quality products or inexperienced contractors. To avoid this problem, you should conduct research and choose someone who has positive reviews. If you can’t find someone online, it may be worthwhile to ask friends and family.
The same goes for materials. Getting the best deal on hardware or appliances may seem great in the moment, but it will not help you if they break within the year. While you won’t necessarily know what the future holds, investigating your options can make a world of difference when buying a fixer-upper home.
When it comes to submitting a proposal, you want to offer a fair price that reflects the amount of money you will need to invest. If the property requires extensive repairs, you should not provide the same amount as you would if it was move-in ready. While this may seem obvious, it’s easy to get caught up in the excitement of buying a unique property.
You need to create an offer that leaves you room in your budget for remodeling — otherwise, you’ll spend more money than you intend. While you want to remain competitive, you need to consider your future plans. With this in mind, you may not know the property’s true condition, so you should always include a home inspection as a contingency to the offer.
Real estate agents will tell you how essential contingencies are in the big picture. While you may feel like submitting an offer without an inspection contingency will make you seem more competitive, you could be hurting yourself in the long run. If significant problems exist that you’re unaware of, the lack of an official inspection could cost you thousands of dollars in repairs.
Remember, it’s easy to miss small details that may represent much greater issues. When you make a home inspection a contingency for your offer, it provides you with an exit if you so choose. It also offers you the chance to renegotiate if the inspection uncovers new concerns.
As with any home, there are other issues that should always be considered.
Location – The old axiom about location being most important goes double for fixer-upper homes. The best advice is, as the saying goes, to find the worst house on the best street. Look in neighborhoods that are up and coming.
Surprises – No matter how well thought out the plan, there’s bound to be surprises. Often, when one thing gets torn down or fixed, it will reveal another problem. Understand this going in to the project.
Few people can look past the rundown outward appearance of a house and see the potential. For those that can, and are willing to put in the hard work, it can be a very rewarding experience. Buying a fixer-upper home will either prove to be a wise investment or a financial nightmare, so it is prudent to do proper research before taking on such a project.
Buying a fixer upper home makes sense if you have a plan and the resources to tackle any issues that you find with the property. However, many fixer-upper houses are not move in ready and will require maintenance before they are inhabitable.
It is more difficult than getting a traditional home loan but there are options available so check with your local lenders before purchasing one of these types of properties. Remember, lenders will not loan you more than the home is worth so understand you may need some disposable income to make this kind of buy.
By the amount of structural damage or issues the home may have. While some other repairs can be costly, any home with structual issues should be inspected by a professional as these issues can be both costly and a deal-breaker.
Yes, of course first-time buyers can purchase a fixer-upper home. Check with a qualified lender to determine if you qualify for an FHA HUD 203(k) guaranteed loan. With built-in protection in-case the renovation is more expensive than expected, it can be a good option for new borrowers.
Yes. Two options that will help consumers who are looking to acquire a mortgage for a home that needs repairs include a 203(k) guaranteed loan and a Fannie Mae renovation mortgage. As always, check with your lender to determine the best option for your needs.
Fixer-uppers can be amazing opportunities, but they cause homeowners to make sacrifices. Before you commit to remodeling, you should understand the true impact of your decision. Renovations mean you may not be able to host guests for long periods. They also can tie up significant amounts of money.
Depending on the repairs needed, you may need to live somewhere else while professionals complete the work. Alternatively, you may be living on the property during construction. If you intend to DIY, you’ll need to give up time to do tasks, which means you’ll have fewer moments to pursue other interests. Ultimately, these sacrifices may be worth it, but only you can make that choice.
Buying a new home is a significant commitment, especially if you are buying a fixer-upper home. You should evaluate these 14 considerations before making an offer. With proper planning and foresight, you can buy and design the home of your dreams. While renovating a property is a major undertaking, you may find that with great risks come great rewards.
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