One of the questions a lot of potential home buyers ask themselves is, “should I buy a fixer-upper or a move-in ready home?”
You will get a property for less than the market value, with the potential to create your ideal home. But are you REALLY prepared for what it takes to fix-up or fully renovate a home.
If you have the time, the money, the patience, and are willing to put in the effort needed, buying a fixer-upper can be a great option but its hard work. The most common mistakes people make when buying a fixer-upper are that they under budget how much the project is going to cost, they do not realize how much time goes fixing up a home (hint: A LOT), and just how patient you have to be because its going to take about 17 trips back and forth to home depot EACH WEEK (only a slight exaggeration).
The best piece of advice I can give you is to do the necessary due diligence. Talk to people who have renovated a home before, get multiple contractor bids, start investigating appliance & design costs before hand, and most important add 20% to whatever you think the high end of the cost is going to be.
So what exactly is involved with doing a fixer-upper? Let’s walk through it.
Buying a Fixer-Upper – The Good
- You can “potentially” buy a home for far less, on average, 8% below market value.
- Reduced property taxes will be due because of the lower price you’ve paid.
- When you have renovated, it will be worth considerably more, and you can flip it for a profit or have built up your own sweat equity.
- You can create the home you want, making design choices to fit your needs exactly.
The Downsides of a Fixer-Upper
- More risks involved. You don’t know for sure what the eventual costs will be.
- You will need to hire contractors and be at the mercy of their schedules.
- There could be monetary surprises with the home you didn’t figure on even if you have a thorough home inspection.
- It is not a move-in ready home; you will need to live somewhere else most of the time.
- Your renovations could take longer than you imagine, increasing costs.
- If you need to make structural changes, you will need a permit
If you are a risk-averse person, a move-in ready home would probably better serve your needs as a viable home purchase option.
So you heard all that and you are still considering a fixer-upper. Where do you start?
The first thing you need to know is how bad is it?
Always have a home inspection! A home inspection should provide you the information to allow you to understand if the home is worth the trouble. If the problems with the house are too severe, the home inspection will give you a way out of the contract. I would also have a contractor there or someone that knows something about houses that you TRUST!
The home inspector should tell you if there are structural problems with the home, and if there are, it will be an expensive fix. A home with structural failings isn’t a good candidate for a fixer-upper, and you should move on. While the house might appear to be structurally sound to you, it is better to have an expert check the condition so you can avoid an expensive mistake.
You can use the home inspection report to get a reduction from the seller if the problems aren’t too serious. Get a contractor to provide a quote for the repair and renovation costs. Though this might not be what you pay in the end, it will give you a better understanding of if you should purchase the property.
When you have an idea of the costs involved in renovating, you can deduct this from the expected market value when completed. If you show a loss at this stage, it will be a good idea to reconsider the purchase.
Do You Have What it Takes?
Let me be blunt, fixing-up or renovating a home is NOT rocket science. ANYONE can do it. Do not let anyone tell you otherwise.
With that being said, it is EXTREMELY taxing. It is more than hard work. It is a mental GRIND. No matter how long you have been doing it, no matter how good your are every project will absolutely wear you down.
There is almost no way to prepare yourself for it. The only mindset you can have going in is that the project will not beat me. I will keep going and and fight till the bitter end.
So when assessing whether to buy a move-in ready house or a fixer-upper, you need to be honest with yourself. Are you willing to go through this?
It is absolutely worth it. No question.
But do you have the time and motivation to complete the project? Do you possess the DIY experience to carry out the work? Do you have the time?
It is all too easy to underestimate the amount of time you will need to complete tasks, leaving it to drag on for far longer than you planned for. This can lead to reducing your motivation to finish the project, leaving you with an unfinished home.
Dealing With the Unexpected
With any home that needs some renovations, there is always the possibility that more costly repairs will be required. Even if you have had the home inspected, there could be things that you hadn’t accounted for.
To make sure you are ready for such problems, you need to be prepared for additional costs or other issues that could occur. Don’t make the mistake of believing that everything will go according to plan.
Final Thoughts on Buying a Fixer-Upper
If you are prepared, motivated, and have the necessary skills, buying a fixer-upper can make great sense. You should end up with a home worth more than you’ve spent on it.
There are far more risks involved with such a choice, however. If you have doubts about your ability to handle a big project like this, or if financing the home is going to be too much of a stretch, perhaps a move-in ready home is a better choice.