In a hot housing market in which inventory has remained low and prices are climbing, buying a fixer-upper home can seem like a great way to take advantage of relatively lower costs. . Fixer-uppers can have appealing benefits, like reduced purchase price, relatively lower competition from other buyers, and the opportunity to customize your new home to your tastes. Buying a home in need of repair can also offer the opportunity to own a home in your target neighborhood, even if a turnkey home might be out of reach. However, despite these advantages, buying a fixer-upper can come with its own set of potential pitfalls. Whether you’ve been eyeing a specific fixer-upper, or are thinking about targeting one in your search for a new home, here are a few key factors to keep in mind if you’re considering purchasing a fixer-upper.
Is This Fixer-Upper Worth It? Do The Math.
If you’re considering a property in disrepair, the first step is understanding the renovation costs you should anticipate. All buyers should be sure to secure an inspection of any home before closing, but this is especially critical in the case of a home that needs significant repairs.
Home inspectors evaluate the condition of hundreds of components of the home, including the roof, foundation, electrical, and plumbing systems. However, these inspections are limited to the home’s visible components and systems. In the case of a fixer-upper, there can be electrical, plumbing, and even structural issues that are not visible, and that will not be identified by an inspector. Consulting with a contractor can help you to understand the home’s potential needs and the potential costs of repair. A knowledgeable real estate agent with experience buying and selling fixer-upper properties can also be a valuable resource, helping you to identify potential future needs and referring you to professionals who can help you do the difficult, necessary work of creating a repair budget.
Renovation expenses can be difficult to estimate accurately, but coming up with a realistic estimate — including a reserve budget to account for unknown issues — is critical. As a buyer, understanding the full cost of your investment can help you determine whether you’re getting enough of a discount on the property to make the fixer-upper investment worthwhile. Your offer, plus the cost of the needed renovations, shouldn’t exceed the value of the home after the upgrades.
Understanding The Scope Of The Repairs
Fixer-uppers, like all homes, come in many forms. For some, repairs are mostly cosmetic, including common items like dated kitchens and bathrooms or simply excessive wear-and-tear. Refinishing floors, stripping, patching, or painting walls, and replacing windows, doors, or lighting fixtures are less expensive projects that you can even do yourself.
For other homes, however, repairs to the home’s structure and systems may be necessary to make the home habitable or comfortable. Repairs to major systems like plumbing, heating, ventilation, and air conditioning, or issues with the foundation and roof, are time-consuming and costly. As you consider a fixer-upper, you’ll need to assess your own tolerance for major repairs, as well as the home’s safety and potential future problems. Deciding whether a fixer-upper is worth it goes beyond just money and math. Buyers need to decide if they’re motivated to take on a time-consuming, labor-intensive process. Remember, that labor isn’t just the contractor’s (or projects you take on yourself), it’s the mental and emotional labor of planning renovations, managing contractors, and the inevitable issues that will arise along the way. To that end, not all fixer-uppers will be worth the headaches and hassles.
Remodeling Always Takes Longer Than You Think (And May Require Permits).
Significant renovations can take months, even years, to complete; and anyone who has done even minor home renovations knows that unexpected issues always come up that cause the project to take longer — and cost more — than expected. When considering a fixer-upper, buyers must decide whether they can handle the timeline of renovations – and the inevitable bumps in the road along the way.
Depending on the type of renovations and local zoning laws, you may need a building permit for your project or projects. Major structural changes that involve new construction typically require a permit, so understanding what to expect is essential. An experienced real estate agent and contractor can help you to understand these potential issues, and help you know what to expect. Obtaining a building permit can be a time-consuming process that comes with its own set of additional costs, and often requires the homeowner to submit detailed project plans.
How Will You Finance The Renovations?
When buying a fixer-upper, you’ll need to consider how you’ll pay for the repairs. If you’re planning to finance the renovation via credit card or personal loan, factoring the costs of these methods into the home’s actual cost is essential.
Buyers considering significant repairs may also have the option of obtaining a renovation loan when they make their purchase. A renovation loan is a mortgage that allows the buyer to finance both the home and the cost of renovations at the same time. The benefit of renovation loans is that they give the borrower credit for the home’s increased future value upfront. Since they are based on the value of the home after renovations, the homeowner can tap into future equity and borrow significantly more than they would with a traditional home equity loan. As you consider your financing options, understanding this option is a critical step in assessing whether your potential fixer-upper is worth the investment.
Where Will You Live During The Renovation?
Depending on the nature of the repairs, you may not be able to live in your new home while renovations are ongoing. If you’re planning to live elsewhere, you’ll need a timeline for renovations so you factor the cost of alternative housing (on top of your mortgage) into your budget.
Some renovations add more value than others — and location matters
Prospective homebuyers may believe that all renovations will increase the home’s value, but all improvements aren’t created equal when it comes to adding value to the property.
As we’ve noted before, not all renovations offer a great return on investment. When you’re considering a fixer-upper, you may want to know which home improvements will yield the highest return on investment. Consider what repairs and renovations your fixer-upper needs and consult your real estate agent about which projects boost home values the most in that local market. Of course, if you plan to live in the home for a long time after completing your updates, your enjoyment of the home’s improvement may outweigh the future value of your renovations.
Beyond specific types of renovations and repairs, it’s important to consider your property’s location. A fixer-upper in a good or up-and-coming neighborhood is far more likely to make your investments worth it when it comes time to sell.
When Home Means More, You Need a Team With More to Offer
Ultimately, not all fixer-uppers are created equal, and each home should be considered both on its own terms and with respect to your unique situation and budget. No matter what, your local Baird & Warner agent is with you at every step of the way, with the tools and support you need to make your real estate journey easier.
Before you put down an offer on a home that needs work, make sure you: get a comprehensive inspection; understand the scope of the necessary renovations; get an accurate estimate of renovation costs; consider your budget and how you’ll finance renovations; and think deeply about how willing and motivated you are to take on a time-consuming, labor-intensive process. Whether you’re looking to buy a fixer-upper or a home in perfect shape, your Baird & Warner agent can help you through every part of the buying process.