15 Tips to Guide Your Decision About Buying a Fixer Upper
#1 Consult the Pros for Fixer-Upper Advice
A real estate agent is key to determining the home’s value and can guide you through the process, from identifying fixer-upper houses for sale to calculating the potential post renovation resale value. You’ll also want to consult your real estate agent and make sure whatever you plan to update is not just appealing to your needs, but also the needs of the next Buyer. They can also recommend reputable contractors, home inspectors, and mortgage brokers.
#2 Gather Contractor Opinions and Estimates for the Fixer Upper Bring in contractors to walk through the property and price out renovation costs before making an offer. Ask contractors for a written cost estimate (including prices for materials and labor).
#3 Consider What You Can DIY on a Fixer Upper
Taking on some home renovations yourself could save you up to three-fourths of the project costs, according to the U.S. Census Bureau’s American Housing Survey. Projects that carry higher labor costs like adding landscaping or insulation, building a deck, or replacing windows tend to offer the largest savings through DIY. But be realistic about your expertise and skill set. Taking on projects that are too difficult could result in delays, costly mistakes, and unprofessional results that could hurt your home’s value.
#4 Figure in Permit Costs for Large Fixer-Upper Projects
Large-scale home improvement projects typically require permits, which could add considerable cost to your project. For example, adding rooms to a house or work on the home’s plumbing or electrical often requires permits. Municipalities want to ensure projects are done correctly, safely, and up to code. Check your local rules about permits. Ask your contractor if they’ll be filing the permits on your behalf or if you’ll need to.
#5 Factor in Alternative Living Arrangements While Your Fixer-Upper Is in Progress if your plan is to live in it
Consider where you’ll live while renovations are completed. Smaller or contained renovations, like redoing just a single bathroom, may not require having to relocate. But larger projects — like home additions or the removal of asbestos or mold — may require alternative living space, like an extended stay hotel. This should be added into your budget costs, depending how long you’ll need to relocate.
#6 Put the Fixer Upper to a Comps Test
Your real estate agent can review homes that are similar in size and in the area to help assess the home’s value now and after renovation. They’ll find comparable houses that have recently sold and take an average price per square foot to determine what the house may be worth.
#7 Calculate a Fixer Upper Fair Purchase Offer
Consider the home’s current value versus potential value based on the improvements you have planned. One way is to subtract the estimated costs of upgrades and repairs from the fair market value of the property (or what it would be worth if it was in good condition). That could be your offer price. However, it’s not always that simple. “It may be tempting to subtract the price of the remodel from the asking price, but in some cases the asking price may already reflect those cost and Sellers will not agree. Consider the remodeling costs, the potential payback, and the realities of the marketplace before preparing your offer. Having a realistic budget will help keep you on track and prevent buyer’s remorse later.”
#8 Complete Inspections for the Fixer Upper
A home inspector looks beyond the home’s aesthetics to evaluate the home’s systems and mechanics. Inspectors are crucial in helping to find hidden problems, some issues can’t be seen until you get an inspector in the home. For example, water damage in the attic. An inspector can check the home’s systems to determine if any repairs are needed. You might consider additional inspections for mold, sewer system, pests, and the foundation.
Never jump in without full-cost analyses and inspections upfront.
#9 Make your offer conditional upon inspection
With a home inspection contingency, you could negotiate on the price for needed repairs with Sellers. However, sellers don’t have to agree; they could cancel the deal. Also, if the home is being sold in as-is condition, you likely won’t have the opportunity to re-negotiate repairs.
#10 Beware Budget Busters and Hidden Costs for a Fixer Upper
Don’t get so caught up with the finishes — like the paint, tile and flooring — that you ignore the major systems, Ugly paint is an easy item to fix; updating an electrical system is not. Make sure the major systems — electrical, HVAC, and plumbing are sound or at least that you have the budget for their upgrades. In terms of kitchens and bathrooms, the more fixtures you move, the more expensive it will be. Your project may require that you upgrade the electrical or plumbing. Depending on the job, you may need to involve an architect or engineer, which can all result in special permitting. These can be big ticket items that may not be avoidable. A great contractor can prepare you for this when deciding if the project makes sense for you. Also, seemingly small projects can quickly add up. For example, changing a room’s floor plan by knocking down or building new walls or rerouting electrical work or plumbing. Be leery of big-ticket items like structural problems. For example, foundation repairs or replacement cost could range from $5000 to $100,000 or more. Consult a structural engineer if you suspect problems and get repair estimates in writing.
#11 Cushion Your Fixer-Upper Budget
Always build contingency money into any fixer upper budget about 20 percent of the total budget because there will most likely be hidden costs that will pop up. Make sure you get several bids for the work. Keep an eye on the value of the final product — what it is likely to appraise for when finished.
#12 Line Up Fixer-Upper Financing Beforehand
Set aside enough money for the renovation and the down payment and closing costs (without completely draining your savings). If you’re planning to fund the repairs with a home equity or home improvement loan, get preapproved for both loans before submitting an offer for the home. Consider making an offer contingent on getting both the purchase money loan and the renovation money loan.
#13 Look into Fixer Upper Special Financing Options
Home renovation loan programs can help fund renovation costs. Your mortgage broker is your best source for these types of mortgages. Purchase Plus improvement mortgages are available at most big-name bank. Look into government programs that offer loans and incentives to do specific renovations to a home, for example making it more energy efficient, creating second units, etc.
#14 Prioritize Fixer-Upper Projects for Greatest Return on Investments
To get the biggest bang for your buck, focus on the repairs and improvements that can change the value of your property. This can make your investment pay back over the long haul. Your realtor can help you pinpoint projects for the best resale price for that individual property. They can give you advise on who the target market is and the most wanted features in that price range and location.
#15 Determine Your Risk Tolerance Before You Decide on a Fixer Upper
Buying a fixer upper isn’t for everyone. Fixer uppers are a lot of work, but they can also be very rewarding, both personally and financially If done right. Buying a fixer upper can be a great way for those wanting to get into home ownership enabling you to find a home in your ideal neighborhood at a lower price point. It can also be a good investment for investors.
But, when considering a fixer upper, be upfront about what you can handle and why you are buying it. Be very clear with your real estate agent about what types of projects you’re willing to take on. For some buyers, a fixer upper means they only want to do cosmetic changes. For others, they’re comfortable removing walls or dealing with structural issues.
Remember though with any renovation project, you need patience and flexibility. Projects invariably take longer than planned and may not exactly result in everything you imagined. But with careful planning, you can create a home you love and or a profitable adventure.
