Buying a fixer-upper upper can be a great idea. You get a home in a great area at an affordable price with the potential of getting twice what you paid for it in value once you’ve finished a couple repairs. This of course is a best case scenario, but it is achievable. However, there are lots of things to think about before you take the plunge and invest your time, money and personal energies into a fixer-upper. Let’s start with a simple pro and con list to help you decide if you should purchase a fixer-upper.
PROS OF PURCHASING A FIXER-UPPER:
- Get your dream home. All home buyers have a wish-list of things they want in a home – pool, granite kitchen counter tops, built in grill, location, bay window, etc. A sure way to get your perfect home is to put in the work and fulfill your own dream list. You might not be able to find the home you want within your price range that meets all of your wildest dreams, but you can find a home with the potential to do just that.
- Fixer-uppers are cheaper. Most home buyers purchase a fixer-upper because it’s a great deal financially. It’s in a great neighborhood, has more space or is just generally better than the other homes you’re able to afford. Purchasing a fixer-upper is a great investment for a young couple or family because it allows you to save now on a down payment and monthly mortgage. A fixer-upper is an investment in your future because soon it will be the home you want with a higher resale value when you’re ready to sell.
- Great resale opportunities. Once you fix up your home, its value with increase. It may be below the average neighborhood price now but with a new kitchen, smart tech additions, fresh coat of paint and anything else you “fix-up”, your home gains resale value. Home owners spend a median of 9 years in their homes so you’ll have plenty of time to make the changes you need in order to love it and make yourself a profit once you’re ready to move on.
CONS OF PURCHASING A FIXER-UPPER:
- It can be expensive in the long run. Take the time before you buy the house to do the math and figure out if you will end out on top after all is said and done. Based on a thorough inspection of the house, add up all renovations that need to be completed in the home. Don’t forget, renovations include materials and labor costs – labor is often the most expensive part of the renovation process. If you will not be hiring professionals, consider what your time costs you. Once you’ve assessed the amount you will spend on fixing up your home, subtract that from the estimated value of the home once it’s finished. You should deduct a little extra as well for complications that arise – there is always something that will surprise you. Whatever you end up with after that is what you should be willing to make as an offer on the home.
- Stress of living your life under construction. Taking on a fixer-upper is an investment and it will take time. Are you willing to live in a construction zone for 6 months or more? It can be stressful to have the kitchen out of commission for a week while you repaint the cabinets and redo the counters so you have to be mentally prepared for the reality.
- Expensive mechanical/structural repairs. The best fixer-uppers are homes that need mostly cosmetic fixes which are less expensive and have the greatest impact on resale value. There are certain fixes that are more expensive than others and should be avoided if possible, not just in a fixer-upper but in any home you purchase. Not only are these renovations expensive, they’re “invisible” to the next buyer. That means once you fix them, they won’t increase the value of the home equal to the cost of the renovation job. Expensive fixes to look out for include:
- Foundation Problems – Fixing cracks, slants and the like will cost you $10,000 or more. If your home inspection comes back with foundation problems, you might be best going with a more structurally sound and expensive home.
- Water Damage – Water damage causes rot and mold over time and cannot be ignored in a home. Not only will you have to fix the cause of the water damage, you will also need to replace all damaged wood and materials in the home. It is difficult to estimate the cost but it will almost certainly be thousands of dollars to get everything squared away.
- Sewer Line Problems – Tree roots, sagging over time or clogs can cause problems in a home’s sewer line that runs from the house to the city’s pipes. Slow drainage and backups could be a sign that the sewer line needs attention and it’s your job as the homeowner to fix this. A replacement sewer pipe can cost anywhere between $5,000 and $15,000 – and that’s not including labor!
Now that you’ve weighed the pros and cons and have made an informed decision, here are a few more important tips to remember when you purchase a fixer-upper
Who pays for repairs when buying a fixer-upper? The buyer is not necessarily responsible for paying for all repairs on the home. The seller may agree to pay for some necessary fixes or any of the parties may agree to some sort of split. Don’t be afraid to negotiate on repairs, most importantly a CO2 detector and other health or safety concerns. It is imperative for these types of repairs to be done before you move in and they are commonly paid for by the seller or their agent.
Proactively communicate with your mortgage lender during the process. It is important to ensure the financing on your purchase before putting money into renovating it. Securing a home loan is an important step in the home buying process and can be trickier if you’re buying a fixer-upper. There are special programs to help however like a Federal Housing Administration 203(k) loan. Figuring out what loans you are eligible for is a vital step in this process so do your research.
Include an inspection clause in your purchase contract. An inspection is a standard part of any real estate contract and it’s even more important when you’re buying a fixer-upper. The inspection should assure you that the home is a good investment – structurally sound, pest free and safe. If the results of the inspection reveal the need for pricey structural repairs, then you will be able to back out of the deal because of your inspection clause. Just because a home is a “fixer-upper” doesn’t mean it’s condemned. The best type of fixer-upper is one that needs mostly cosmetic improvements.
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