Fixer-Uppers – Things To Keep in Mind
Are you considering buying a home that needs work? Buying fixer-upper houses can be a good move in certain circumstances.
On the surface, the idea of purchasing a fixer-upper for cheap and selling it for a high price seems like a no-brainer. But it is essential to move carefully and understand what you are getting into before you move forward with buying a fixer-upper.
House flipping is not as easy as television shows like HGTV and Flip This House make it out to be. Joanna Gaines runs a pretty popular television series called Fixer Upper. It’s a good idea to assume it won’t be as easy as it might seem.
Plenty of people have lost money on fixer-upper houses by failing to consider the work, expense, and resale value of the property they are buying.
Whether you are a first-time homebuyer with construction experience or are a real estate investor learning to flip properties, it is essential to have a solid game plan.
You may think you have as much knowledge as an established real estate investment company like We Buy Ugly Houses, but that may not be the case.
These national companies have been around the block for quite a while and know what they are doing. They don’t often make mistakes when it comes to purchasing a fixer-upper house.
Let’s take a look at everything to know about buying fixer-upper houses.
What is a Fixer-Upper House?
A fixer-upper house is usually considered to need a substantial amount of work. The properties can have a significant range in the amount of work necessary to become turn-key homes.
A fixer-upper could need a major renovation to fix structural issues or just need significant cosmetic improvements both inside and out.
Some fixer-uppers have good bones but need a lot of home improvement projects. Most fixer-uppers require repairs that go beyond the capability of a homeowner fixing them on their own.
Many people will skip viewing fixer-upper houses altogether because they have no interest in taking on home projects or dealing with renovation costs.
Move-in Ready House vs. Fixer Upper House
The decision to purchase a fixer-upper home vs. a move-in-ready home often comes down to budget. Many first time home buyers would love to buy a turnkey home but are priced out of the market.
Fixer-upper projects allow some buyers to enter the housing market when they don’t have enough money for a more expensive property.
The purchase price can often be the most significant factor in their decision. With home prices across the country continuing to rise, that is unlikely to change.
Properties that need home repairs are a great way to get in with a renovation plan and take a home from lousy to good condition.
Some of the best fixer-upper houses are older homes as long as they don’t have substantial functional obsolescence. For example, if the floor plan can’t be changed and you have to walk through a bedroom to get to your master suite, you might want to consider a different property.
Maybe the home is located at a busy intersection, and because of that, the market value isn’t going to increase as much as it should with a substantial renovation. It might make more financial sense to find a better neighborhood.
Now let’s take a look at the pros and cons of buying fixer-upper houses.
Why Buy a Fixer-Upper House?
Some of the most common reasons why people purchase a home needing work are the following:
- A strong desire to get a great deal. Quite often, fixer-upper homes are owned by folks who have run into some financial difficulty and need to sell. Of course, most of these homes will be bought as is, so doing the proper real estate due diligence will be essential.
- You have a strong desire to customize a home into exactly what you want it to be.
- Either you or your family members have construction experience and can do much of the required work needed.
- Saving money for home renovations has been a part of your whole game plan for buying a home.
- House flipping is your new business.
- You know you can substantially increase the market value and turn the property into your dream house.
Check out the following information to better understand what you need to know about purchasing fixer-uppers. Being smart about your next steps is necessary if you want to have a positive – and lucrative – experience.
Make a Detailed Purchase/Renovation Plan With Fixer Upper Houses
When buying a fixer-upper home, you need to have a plan. Every buyer is different. You could have decades of renovation experience, or you could have never touched a screwdriver. You could have deep pockets and a high tolerance for risk, or you could be riding the edge to get an affordable home and need to be extremely careful in how you spend your money.
Whatever your situation, you have to decide what you want and what you are willing to do to get it. That way, when you look at each potential property, you can consider what it will take to complete the project – in time, money, and effort – and weigh that against your expectations, desires, and game plan.
A real estate investor may be in a position to take more risks than a first-time buyer who has saved for years to be able to buy a home. Jumping in and purchasing a lemon because the price seems attractive could be disastrous financially.
It could potentially set you back for years. Far better to be safe than make a terrible first-time buyer mistake. A home in need of major repairs might not be suitable. A good rule of thumb is to know your limits before buying a fixer-upper.
Understand Your Limitations When Buying a Property in Rough Shape
If you have friends and family, who are in the construction industry, that’s great. It is a very valuable perk when buying a fixer-upper home.
Someone with general construction knowledge will be able to help you put together the home of your dreams. What if you don’t? Deciding what work you can and cannot do yourself will be an essential step.
It is essential to pick the right contractors when purchasing a house to live in as your own. Vetting the contractors should be at the top of the list when buying a fixer-upper.
The right general contractor can make all the difference in the world when buying a fixer-upper. Problems such as water damage from bad plumbing and electrical system issues are best handled by the pros.
Never Skip Out on Proper Building Permits
You’ll want to make sure any contractor you hire does not take shortcuts. One of the things at the forefront of the real estate industry is not getting building permits for required work.
When you go to sell without proper permission, it can cause significant headaches. Insist of any contractors doing work at your property pull the necessary permits!
Checking for permits will be part of the due diligence process when checking on the history of the house and surroundings.
You Need to Find The Right Fixer Upper Home
A walk around many neighborhoods will show you an endless supply of homes that would qualify for fixer-upper status. Rundown, overgrown, foreclosed, seemingly abandoned – there are always homes that have gone by the wayside, and even more came onto the market after the real estate crisis years ago.
But just because a house needs a lot of work does not make it a good investment.
The right property will give you a good chance of achieving your goals. What are your goals? Well, you may be looking to flip a home – fix it up and sell it for a profit – or you may be looking for a good deal on a home that you want to live in long-term.
Many real estate investors will take the time to find suitable fixer-upper homes by looking at off-market properties. Many properties suitable for flipping are not listed for sale.
Investors will often find who owns a property by various means and contact them to see if they would be interested in selling. This method offers less competition. You can often find homes in good shape that don’t need much work to make them turnkey.
Not Every Fixer-Upper is Good For Flipping
If you are flipping, you must find a property that you can buy for cheap enough to profit after the expense of renovations. Not all homes in need of repair fit this category.
Plenty of owners/lenders will not part with a property for the right price despite its condition.
Even if you want to live in the property long-term, you still want to find a good deal. You will be pouring money into the property and plenty of hard work to make it livable.
If you can’t get a fair deal, you are probably better off buying a decent home and skipping the renovations process and all the challenges it brings.
Find a Realtor experienced in your market and have worked with buyers looking to do what you are planning – you need a knowledgeable partner to help ensure you only make offers on properties that are cheap enough to justify your plans.
Two essential first-time buyer tips are finding an exceptional real estate agent and not going over your budget in a hot seller’s market where multiple bidders are prevalent.
Don’t Forget About The location When Buying Fixer Upper Homes
Whether you are an investor or an end buyer, one of the most vital aspects when buying a fixer-upper home is the location. For that matter, this wisdom applies to any home. When purchasing a home that needs to be renovated, don’t forget about the importance of the neighborhood and general area.
A good option for the purchase of a fixer-upper is always one in an excellent location.
Real estate has always been focused on the strength of an area. The better the city or town, the more people value a property. When it comes to fixer-uppers, you need to remember the importance of your surroundings for several reasons.
Your tolerance for discomfort – you are looking to spend months slaving away at renovating a home – is high, making you fail to appreciate the importance of location as a real estate investor and as a homeowner.
After all your hard work is done, the home will still be where it started. If your location stinks, the property’s value will not be as high as it could be, no matter how extensively you renovate. And if you are in a location that you don’t like – such as an area with high crime rates, no services, etc. – you are not going to enjoy living there long term.
Understanding how to pick a neighborhood is a vital part of the home buying process. Additionally, you need to make sure you do adequate due diligence to ensure no other potential marketing problems close to the property.
Thoroughly Research The Costs to Renovate a Fixer-Upper Property
You only need to check out YouTube or social media to hear the endless optimism – “I made so much money flipping houses, and you can too!” Assuming the person making the videos or posting the pictures is telling the truth, what you are not hearing is how many mistakes they had to make to get to the point where they could reliably buy and renovate fixer-uppers.
You mustn’t assume that you can just buy a dilapidated home, fix it up, and come out ahead – much less far ahead.
There is no blanket, one-size-fits-all approach to real estate. You need specific details for each property you are considering and an understanding of how it fits within the surrounding market, which means you need a real estate agent who knows their stuff.
The Realtor should be highly trustworthy. Real Estate agents are a dime a dozen. You’ll want someone who doesn’t need a sale. Without a doubt, the best advice will come from someone who isn’t starving for business.
The Cost of Repairs is Critical With Fixer-Uppers
With any new home project, you need to have a solid handle on costs.
When you find a home that seems promising, you need to dive into the details and figure out exactly what needs to be fixed and how much it’s going to cost. Ok, ‘exactly’ is perhaps a stretch. You will be dealing with estimates — the price you purchase a fixer-upper for will always be a critical aspect. And no, a Zillow home value estimate is not something you should ever consider as being the home’s value!
Many times, renovation projects wind up costing more once you uncover just how much is wrong. In any case, you need to work with a Realtor and a real estate inspector to determine what the costs of your renovations are likely to be. The cost of repairs could end lopping off a substantial amount of your profit.
Get a Thorough Home Inspection When Buying Fixer-Upper Houses
Unless you are a contractor and have a background in all facets of construction, getting a professional home inspection would be highly advisable.
It should be evident that you need to have the property inspected before you decide to buy – but let’s say it anyway! YOU MUST GET AN INSPECTION!
You need to know as much about the property as possible to accurately estimate the cost of renovations and the risks you face buying the property.
The inspection should look at all major components of the home, including:
- Foundation
- Roof
- Electrical
- Plumbing
- Sewer
- HVAC
- Driveway
- Bathrooms
- Kitchen
- Decks
- Steps
What Other Things Should Be Checked When Buying an Uncared For House?
To be as comprehensive as possible, you could go beyond a standard inspection and get the following done as well:
- Check sewer lines or septic system – You can get the lines scoped, and the septic tank inspected to see if they need to be repaired or replaced.
- Deal with lead paint – if a child under the age of six lives in a house built before 1978, you need to know the lead paint law.
- Pest inspection – Pests like termites can make your renovations much, much harder, and more costly.
- Radon testing – radon is an odorless, tasteless gas that comes from the ground. It is a known carcinogenic that can cause cancer.
- Check on the well – if a well services the home, make sure you check both the quality and quantity of the well water.
- Ensure there is no mold – when buying a home in less than stellar condition, make sure you check for the presence of mold.
- Thermal Imaging – A thermal imaging test of the home could detect insulation problems, moisture, and electrical issues.
One of the worst potential parts of buying a home in tough shape is the potential for problems not visible to the naked eye. You don’t want to be stuck with a lemon. Having the property thoroughly inspected from top to bottom cannot be emphasized enough. Choosing the right home inspector will be critical.
The FHA 203K is One of The Best Financing Options When Buying a Fixer-Upper Home
If you’re wondering about a fixer-upper home loan, look into the FHA 203k loan.
An FHA 203k rehab loan is one of the best ways to purchase and renovate a fixer-upper house. The Federal Housing Administration sponsors the FHA 203k. The advantage to the 203k loan is unlike a traditional mortgage; it allows you to roll the renovation costs into one loan.
With a conventional mortgage, you would not have the ability to account for the money needed to fix up the property. With an FHA 203k loan, there is also a super low down payment requirement of 3.5%.
Buyers can get estimates for necessary repairs and have that become part of the overall mortgage. It is a great option when buying any property that needs work.
Other Mortgage Options When Purchasing a Fixer-Upper House
There are some other excellent mortgage programs besides the 203k loan as well. The resources below will explain the buying a fixer-upper home loan process.
You might be surprised to learn that there are multiple mortgage loans for first-time buyers who want to purchase a home that needs a renovation. These fixer-upper programs include:
- Freddie Mac’s CHOICERenovation Mortgage – Learn what you need to know about the Freddie Mac renovation loan.
- Fannie Mae’s HomeStyle Loan– See how the Fannie Mae loan program works for home renovations.
- VA renovation loan – If you have or are serving in the military, the VA renovation loan could be the perfect type of financing for your project.
The great thing about these loans is that they allow you to borrow money for the initial home purchase and the renovations you need to do before the home is thoroughly enjoyed. It is hard to overstate how much more convenient these programs are than it would be for you to get a mortgage and then get a loan to pay for renovations.
There are other home improvement loans, but they are not the best option.
You don’t need to get a personal loan, put money on credit cards, or take out a home equity loan AFTER you own the house. One of the financing programs, as mentioned above, is the best way to finance a fixer-upper.
Talk to your Realtor about your different lending options to see which ones make the most sense for you and your circumstances.
Buying Fixer Upper Houses Near Me
If you are wondering how to find fixer-upper homes for sale the best way will be hooking up with an excellent local buyer’s agent. They will have access to all of the properties that hit the market.
When you want to do a bit of research on your own you can use Google to help. Searching fixer-upper homes for sale near me may return some results. You might also have luck with buy fixer-upper houses near me as well.
Final Thoughts on Buying a Fixer-Upper.
Buying a house that needs work is not for everyone. However, if you know what you’re doing, the purchase of a fixer-upper can work out just fine. Hopefully, you have found the information helpful in deciding whether that run-down property is worth your time and effort.
Buying the worst home on the block can be lucrative when you have the skill to put all the pieces together.
Fixer-upper houses aren’t going to be suitable for all buyers. It will be your job to figure out if they are right for you.
Additional Beneficial Real Estate Articles
- Understanding rent to own homes – Are you interested in renting to own a home? Maybe you are not in a position yet financially to purchase a home. See the pros and cons of renting to own.
- What are fixtures in a house – see a detailed explanation of what is considered “real” property and what isn’t. Do you know what stays and goes in a home? Find out.
- Guide to homeowners association fees – on the surface, having low HOA fees may seem excellent, but is that the case? Find out why small homeowners association dues might be a red flag.
Enjoy these additional articles loaded with excellent advice to help buy or sell a home.
About the author: The above Real Estate information on buying a fixer-upper house was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 34+ years.
Are you thinking of selling your home? I have a passion for Real Estate and would love to share my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Great article Bill, I would just add mold inspection to the list. I haven’t been in many foreclosures that didn’t have mold. I would also be wary of bank owned properties that use the term “surface discoloration” that almost always means mold, and always means they covered something up.