Buying a “fixer-upper” used to be a money making endeavor if you could then “flip” the home for a profit, but in today’s economic market many are using them as a way to save a little on the cost of the home. That’s a great idea if you can, 1, do much of the work yourself. And 2, don’t go try to save so much that the home is unlivable.
There are many things to consider when buying a “fixer-upper”.
Experts recommend trying to avoid homes that need major renovations or structural changes as your first project, as these homes have a tendency to grow much larger than most people anticipate. Also, once you start digging into the bones of the house you could find the project snowballing into larger problems. You don’t want to get caught throwing good money after bad. Instead, look for homes needing some sprucing up with cosmetic changes. These are much easier to budget for and much of the work can be self-done, depending on your skillset. Additionally, cosmetic changes generally have a better return on investment.
And, of course, don’t forget to check out the age of the HVAC system and the home’s plumbing. Either of those projects could lead to unforeseen expenditures. And, if the home is older a plumbing project could lead to some headaches.
When assessing a property for purchase you’ll want to bring along an expert, home inspector or real estate agent, to give you a thorough estimate of the property’s value and condition. The inspector can help you understand how much work will be necessary and find any structural problems you may want to avoid, and the real estate agent will assist in valuing the neighborhood, so you don’t end up overpricing the market. You don’t want to purchase a $300,000 home that needs $100,000 worth of work in a $300,000 neighborhood. Especially now that many experts are expecting a slowing of the housing market.
That slowing though could be beneficial as it may give you some time in getting your renovation estimates in order before making an offer. When determining your offering price, you’ll want to estimate all labor and material costs for the renovation. Experts recommend estimating on the high side with an additional 5 to 10 percent for unforeseen problems and factoring this into the home’s future estimated value. You’ll also want to factor in the extra time unforeseen problems will take. Time is money!
And, speaking of finances, depending on the condition of the property you may run into difficulty securing a loan. You also may not be able to secure a loan for the renovation costs. There are a few government mortgage programs for renovation properties, so do your homework and have your financing lined up in advance. Or, if at all possible, remember, Cash is King.
Buying a fixer-upper is a great way to save money on a home purchase and the rewards can be significant. Buy wisely, buy cautiously and use the advice of experts to guide you and your decision.
