Buying a fixer-upper is a great way to save money if you like DIY. You can buy a home for under-market value and turn your hard work into equity.
But buying a home that has problems can be a considerable risk. We look at the pros and cons of choosing a fixer-upper.
What is a fixer-upper house?
A home that requires significant repair work is a fixer-upper house. The work might involve major structural repairs and require a lot of money and time to fix. You can probably still live in the home during this time, and the inconvenience and effort should allow you to buy a better house than you could otherwise afford.
The pros and cons of buying a fixer-upper house
Before you choose a home that needs a lot of work, you should evaluate the pros and cons.
The pros
- Lower prices: The home will be listed for less, and a smaller down payment will be required. The cost of renovating the home could make up some of the difference.
- Less competition from other buyers: There are likely to be fewer people trying to buy a fixer-upper home.
- Create your space: With a home that needs significant repairs, you can remodel the home as you want. If you want to tear down a wall to open the living space, this will be the best time.
- More control: The renovations to the home are completely your responsibility, and you can choose the materials, colors used, and the finish of the rooms.
The cons
- The cost: Renovations can get expensive, making it difficult to recoup your money when you sell.
- Unpredictable expenses: You can work on getting an accurate budget for the work that needs to be done, but this may not be very close to what you eventually spend. There can be unexpected extra costs when you pull apart the home that the inspector won’t have seen.
- Living through the renovation: The work on the home can take a long time, and you will likely be living in the property during this time. Living in the middle of a renovation can be difficult and stress relationships.
How to buy fixer-uppers
If you want a house fixer-upper, your buyer’s agent can help you find the right property. They will have the connections to assist you in finding a home within your budget and even find a property not listed in the multiple listing service.
Fixer-uppers are often sold at auction. Foreclosed homes available through an auction are sold as-is and could be what you want. Though, using an auction is more risky, with less opportunity to really find out the home’s condition before the sale.
Buying steps
There are more things to consider when buying a home that needs renovation. These steps could help you avoid buying an unsuitable property:
Have the home inspected
Home inspections are recommended with home purchases, but fixer-uppers are more important. The inspector is a qualified and experienced professional who could spot problems you overlook.
If you don’t have an inspection, your budget will likely be used up sooner than expected.
Price the renovation
You need to be sure you can afford the renovations you are planning for the home. Make a list of all the required materials and estimate the labor costs if you need a contractor.
Get quotes for work, and find the needed materials’ prices. This will only give you an estimate, but it will show if the project is viable. It’s far too easy to make renovation mistakes.
Do you need permits?
Check if you need permits for the work you are planning. You can check online with your local government to see what is necessary.
What work can you complete?
If you can tackle more of the jobs in the renovation, you will save more money. When deciding what to do, you must ensure you can complete the work well enough. Otherwise, you might need to have the work redone if it doesn’t turn out as you hope.
Fixer upper loans
Loans like the 203(k) rehabilitation loan from the FHA can make buying and renovating easier. They allow you to buy the home, then provide the funds you can draw from to complete the project.
They are one of the best loans when buying a fixer-upper home.
Making an offer
Your offer needs to consider the costs involved with renovating the home. You want to get a good deal so that the work involved pays off. You can more easily justify offering less if the home inspector’s report indicates several serious issues.
Final thoughts
Fixer-upper houses are not for everyone. Ensure you have the time and effort to restore a property to its former beauty. You may find out there is significantly more work than imagined.
Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 35 years.
