Purchasing a Fixer-Upper?
Purchasing a Fixer-Upper?
With the popularity of HGTV shows like Fixer Upper, many people have at least considered purchasing a property that needs work and turning it into their dream home. Real estate can be a great investment… and right now interest rates are low, making this an opportune time to buy in some areas.
Should you take the plunge?
There are both pros and cons when it comes to purchasing that diamond in the rough…
On the “pro” side, a fixer-upper is a great way to purchase a house for less money. Homes with cosmetic issues sell for less than those that have been kept up. This is especially helpful when you want to get into a great neighborhood but the homes are expensive… A fixer-upper in a nice neighborhood is often a better buy than the nicest home in a not-so-great location.
Homes that need work may also have been on the market longer than their prettier peers. The longer a home is on the market, the more likely it is that the seller will be willing to negotiate on the home’s purchase price.
When buying a property that needs work, you have some room to let your creativity flow. For many people, that’s part of the attraction of buying a fixer-upper. You can put your heart into it and create a space that meets your needs and personal style.
In addition, well-done renovations on a home add equity. This can be a boon for many reasons, including refinancing options and future resale value.
On the other hand, purchasing and renovating a home just isn’t for everyone.
If you’re not handy with renovation, you’ll need to pay an expert to do the work… This can get expensive and sometimes even end up costing more than you would have spent on a more up-to-date home.
If the home needs major work, you may have to live elsewhere during construction… Can you sustain two mortgages or rent plus a mortgage? The added expense can be a burden that makes renovating much more difficult.
Finally, how comfortable are you with dust, dealing with contractors and either doing or overseeing construction work? For some people, the prospect of taking a home from shabby to chic or adding on rooms is exciting. For others, it’s a stressor that might not be worth it. Are you able to focus on a project like this now or is your life already full enough? Considering the impact of taking on a large project is important, even if the home itself is a screaming deal.
After you’ve considered the pros and cons of buying a house that needs work, there are some important steps to take before you sign on the dotted line. Covering your bases before you begin will go a long way toward determining your renovation experience… and can make the difference between a great investment and a money pit.
First, make sure you get a thorough inspection done before you purchase the house. Find a qualified professional with good reviews and let them know exactly what you’re hoping to do with the property. A good inspector can save you a world of hassle later on by giving you a heads-up on problems that might be expensive to repair. Updating a kitchen or finishing a basement is one thing; replacing a foundation or remediating black mold is quite another.
Second, consult with an appraiser if you’re depending on the renovations for future refinancing or sale. One benefit to buying an inexpensive home and renovating it is that if you have mortgage insurance on your home loan, you can often refinance and remove the extra payment once you’ve got 20% equity in the house. But if you’re planning to refinance or cash in on the home’s appreciation after a year or so, you’ll want to make sure that the work you do will help raise the value of the home enough to be worth it.
Finally, plan for there to be bumps in the road. Leave room in the budget for unexpected “surprises,” like hidden leaks or expenses when things don’t go exactly as planned. In addition, it’s common to begin a project and then decide to upgrade on materials or finish something you thought you’d put off until later. If you’ve planned ahead, you won’t be as worried about going over budget.
Fixer-uppers can be a great investment, but there’s a lot more to it than just adding some shiplap and a designer kitchen island. Chip and Joanna Gaines and other HGTV personalities make it look easier than it is, but the right investment and the right renovations can definitely boost you a few rungs higher on the property ladder!