What To Consider When Buying A Fixer-Upper

Tips for Buying a Fixer Upper

Are you looking for a house that will be filled with your personal touches instead of pieces of another person’s? Then a fixer upper may be for you. It is without a doubt that a fixer upper is much more of an undertaking than a move-in ready house, but all your work could be worth it. Renovate a house just the way you want it without the premium price tag of building a whole new house. This idea sounds appealing to many people, however there are many potential issues that can come with buying a fixer upper. Below are some of my tips to make sure you have an understanding of what you are taking on and a variety of financing options before diving into a large renovation project.

 

Mortgage Options vs. Your Budget

When you purchase a fixer upper, there are renovation loan options that assist you finance a house and the improvements simultaneously, saving you plenty of time and allows you to buy a home that needs some TLC. The loans let you pay off renovations over a longer period of time with a lower interest rate than other finance options. The different loans that are offered include:

Be sure to look at all the available options when choosing a loan and decide what is best for your given situation. Most renovation loans also come with certain limitations and rules on who can complete those projects.

If you purchase a traditional mortgage instead of a home improvement mortgage, repairs will have to come out of your pocket or through a personal loan.

With the nature of remodeling, usually the budget and/or timeline changes and does not go as planned. Whether you do the home improvements yourself or hire a professional, there is always risk for setbacks. Always prepare for improvements to take longer than expected and more costly than anticipated in order to cover the worst-case scenario.

 

What to Consider When Thinking of Renovation Projects

Be sure to do your research. Make sure the homes are well maintained in the area you’re looking to buy in. If you purchase the worst house on the best block in a neighborhood, that could pay off in the long run.

Keep the condition of the house you are looking at in mind. To minimize renovation costs, you want to make sure the house has a solid foundation, roof, natural lighting, and quality construction. Performing a full gut renovation on a home is not ideal but if the numbers work, it could provide the best option in the near term and for long term resale. The ideal fixer-uppers are those that require mostly cosmetic or smaller improvements which generally cost less and return more in market value.

Choose a house with a layout you are content with. Having to knock down walls, adding additional square footage, and re-arranging the floor plan is possible, but isn’t ideal and will cost more and add to the timeline of the project.

If you choose a house where you do end up having to do some structural repairs, you can possibly add in a cosmetic improvement at the same time to further increase the market value or marketability of the home on re-sale. For example if you have a damaged roof, while you are replacing it, add a skylight at the same time.

Be sure not to over improve. It is recommended that you should only seek to raise the value of your house approximately 10 to 15 percent in case home prices fall or stay flat.

 

Creating a Budget

To budget for renovations, you should tally up all the renovations needed through a thorough assessment of the condition of the home and estimate how much those renovations will cost including materials and labor. In order to manage your expectations, add up to 10% to the timeline and budget for unforeseen issues, delays, or increases in costs.

Major renovations that can be more costly may include:

 

Cost Analysis

When making an offer on the house, you should be mindful of how much money you are going to be putting into repairs. Once you have an estimate on the cost of the renovation, subtract that number from the approximate market value after improvements, and whatever remains is a good approximation on what your offer price should be.

It is vital that your offer includes an inspection clause. The home inspector can uncover hidden problems that can be detrimental to your purchase such as water leaks, mold, lead-based paint, septic problems, and pests. If the inspector finds serious problems, you can get the seller to pay for those repairs, get a lower asking price, or decide it’s not the house for you.

 

DIY Whenever Possible

When renovating a house, the most cost effective way is to do it yourself because the cost of hiring contractors can add up. However, be prepared that the project will take months or even years to complete if the scope of the renovation is large. You should ask yourself, do you have the time and motivation to do it? If you can only renovate a few days a week, are you comfortable living in an unfinished space for an extended period of time? It’s important that if you decide to do DIY projects that it is something you feel comfortable taking on. If you are not well versed in completing a project of this nature, you should consider hiring a professional to make sure its done correctly and within the code.

 

Check If a Permit is Necessary 

Make sure you do your due diligence and inquire about the renovations you plan complete and if a permit is necessary. Also check to see what the costs are associated with those permits. You don’t want to run into any legal issues when you go to sell your home later on. You can get the permits yourself or you can have a contractor apply for them for you. Obtaining permits can be overwhelming at times but they protect you. Definitely keep this in mind and factor it into your renovation plans and costs.

Purchasing a home is one of the biggest financial decisions you will make in your lifetime. A fixer upper is a great way to get into a neighborhood that you really love but it will come with costs and stress that you may not want to take on. Always make sure to consult with a real estate professional who can perform a thorough analysis on the market to present you with real-time data in order to make an informed decision.

 

Questions? Please contact me and I would be happy to assist and answer any questions you may have.