The unexpected truth about buying a fixer-upper

Aug 4, 2020 / by Homebase by Ribbon

Thinking about buying a fixer-upper?

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You see people buying project houses all the time — on HGTV (who doesn’t love Chip and Joanna Gaines?) and in day to day life.

They purchase inexpensive, out of date, and run down houses.

With a little work, they turn it into a gorgeous home that you’re drooling over.

The best part?

After living in their magazine-worthy home, they can sell it for a lot more than they paid for it.

All this means fixer-uppers are a win-win, right?

Not exactly.

Behind the stunning finished product is a lot of hard work, budget challenges, longer than expected timelines, and other difficulties. Turning a fixer-upper into your dream house takes a lot more work than it seems.

But, if you have the patience, budget, and DIY skills, a fixer-upper home can be a great way to get your dream home for less. As a first-time homebuyer, however, you might not have the budget or know-how to take on a project house.

So, how do you know if a fixer-upper is right for you? Read on to find out — and learn how to buy a project house the smart way.

What Is a fixer-upper?

A fixer-upper is a house that needs improvements. These repairs can range from minor changes — like switching flooring or repainting. Or, they can be major fixes — like structural repairs or updating plumbing and electrical. Depending on the improvements needed, fixer-uppers can be livable or need work before you can move in.

Should I buy a fixer-upper?

Buying a fixer-upper has become increasingly popular in recent years. Fixer-uppers make great investments (if you choose the right one) and allow you to add your own personal touches to a home. But, sometimes project houses be more work than most expect — leading people to take on bigger projects than they can handle.

So, before buying, it’s important to know whether a fixer-upper is right for you. We’ll share the pros and cons of fixer-uppers:

Why should I buy a fixer-upper?

Read on and we’ll explain the benefits.

One of the biggest selling points of a fixer-upper home is that they can help you afford a bigger home in a better neighborhood. Generally priced below market value, a project house can save you tens of thousands of dollars.

For example, if you want to live in an area where the median home price is $300,000 but your budget is $275,000, a fixer-upper can make living there affordable. Houses that need work in that neighborhood could be priced at $250,000. With the $25,000 left in your budget, you could make the fixer-upper just as nice as any other home in the area.

Another benefit to fixer-uppers is that your renovations increase the value of your home. If you buy a house for $250,000, it could be worth $300,000 after your $25,000 improvements. This means you have $25,000 of equity above the money you’ve put into your home. So, if you wanted to sell it once you finish the improvements, you’re guaranteed to make a profit.

Along with increasing your house’s value, buying a fixer-upper also allows you to create your dream home. Fixer-uppers are essentially a blank canvas. With your renovations, you’re able to change everything to be exactly what you want.

For example, if you love the Scandinavian look, you can swap out dark floors and cabinets for white-washed wood and a clean, modern kitchen.

Fixer-uppers allow you to customize your home completely — without the hefty price tag of new construction.

Buying a fixer-upper can be a good idea if you want to get a deal on a home, sell it for more than you bought it, and customize it to be exactly what you want.

Why shouldn’t I buy a fixer-upper?

Although fixer-uppers have a lot of benefits, the major drawback is the amount of work to turn the house into what you want.

While you might think changing flooring and paint will be a breeze, it will take a lot of nights and weekends to make all the changes you need. And, doing all of these projects can put a lot of stress on you and your family. Instead of going on a date, seeing your friends, or spending time with family, you’ll be working on your house.

Even with big renovation projects you hire pros to do, you’ll still have to manage the process. You’ll need to pick out the finishings, regularly communicate with your contractor, and frequently check in on the renovation progress (to name a few).

Buying a fixer-upper is a big time commitment. So, before you buy, you need to make sure you have the time and motivation to see the project through to the end.

Another downside to buying a fixer-upper is that renovations can cost more than buying a move-in ready home. If the house only needs minor changes — like new paint and flooring — then you’ll likely save money by buying a fixer-upper.

However, if the house needs a complete kitchen overhaul, a new roof, or updated electrical (or all of the above), you’ll likely spend more in renovations than you saved by buying a fixer-upper. So, if your primary motivation for buying a fixer-upper is saving money, then a project house might not be for you.

Along with costing more than buying a turnkey home, a fixer-upper can take a long time to finish. If you’re doing most of the work yourself, you have to fit the renovation around your work, family, and life schedule. So, any work you do will take longer than a pro.

Hiring a pro can make the work go faster. But, any type of construction always runs into delays. Whether that’s finding unexpected insect damage, a subcontractor messing up work, or the contractor moving slower than estimated, your renovation is going to take longer than you expect.

So, if you want to move into a house that’s finished quickly, then a fixer-upper might not be for you.

Fixer-uppers require a huge time commitment. And they often cost more and take longer than you expect. So, if you want a house that requires little work and investment, a fixer-upper might not be the best choice.

Pros of a Fixer-Upper

  • Low purchase price
  • Can increase home’s value
  • Customizable to create your dream home

Cons of a Fixer-Upper

  • Requires a lot of hard work
  • Can cost more than turnkey home
  • Takes longer than expected

How can I buy a fixer-upper the smart way?

If after going through the pros and cons of buying a fixer-upper, you still want to purchase a project house — congrats!

A fixer-upper can make a great first home — if you choose the right one. Otherwise, you could be stuck in a house that sucks up all your money — while hardly improving or increasing in value.

To avoid that, here’s how to buy a fixer-upper the smart way:

Step 1: Be Realistic About Your Skills

Before even looking for a fixer-upper, you need to know what renovation skills you have — and which you don’t.

If a house needs an amount of work that only fits in your budget if you do it yourself, you need to be realistic about whether you’re handy enough to make those repairs. Otherwise, you could buy a house with more renovation projects than you can handle.

You can probably tackle most of the work in a fixer-upper if you’ve done renovations before. If you’ve only repainted and made very minor repairs, you should probably stay away from having to redo your kitchen by yourself. If you’ve done advanced home improvement projects — like installing flooring, cabinets, or tile — you can probably DIY more of your renovations.

But, if you haven’t done any home improvement projects before, you’ll either need to stick to very small projects — like repainting. Or, you’ll need to hire a contractor for much of your renovation.

Being realistic about your DIY skills can help you choose a house with work that fits in your skillset and budget.

Step 2: Line Up Financing

Renovating a house takes money on top of your down payment, closing costs, and traditional mortgage. If you have enough cash saved up to do renovations on top of those costs, then you’re all set.

But, if you’re like many first time homebuyers, your down payment is all the cash you have. So, you need to line up financing for both renovations and purchasing a home.

One of the easiest ways to do this is to get a mortgage that also allows you to finance renovations. So, if you want to buy a home for $250,000 that needs $50,000 of work, you’ll need a mortgage totaling $300,000. That way, you can finance your home and renovations at the same time — and not worry about paying back 2 separate loans.

Common renovation mortgages are the Federal Housing Administration (FHA) 203k, VA renovation, and Fannie Mae HomeStyle mortgage. With these mortgages, you usually have to get multiple appraisals, your renovation plans approved, and inspections after your renovation.

While renovation mortgages require extra oversight during your renovation, they’re a great way to finance fixer-upper improvements if you don’t have the required cash.

Step 3: Look for the Right Renovations

Not all fixer-uppers are created equal. Some have minor work needed with big returns. And, others have major work required with small returns. So, it’s important to choose a fixer-upper that needs to right renovations.

The best renovations are cosmetic ones — where you’re simply changing how your home looks. Examples of cosmetic repairs include changing flooring, repainting, replacing windows, updating siding, or refinishing the kitchen. If a fixer-upper only needs cosmetic repairs, then it’s structurally sound and in overall good shape.

Cosmetic repairs don’t cost much to do and generate the biggest return. Buyers immediately notice nice hardwood floors, on-trend paint colors, and granite kitchens. So, they’re willing to pay more for your home because you’ve made it look awesome.

The other kind of repairs are structural — which you want to stay away from. Structural repairs include fixing foundation cracking, updating electrical, and putting in better roof support. These repairs are costly — without providing much return. Buyers can’t see new electrical or roof support — so they won’t pay more for these improvements.

When choosing a fixer-upper, it’s important to choose one with the right renovations needed — ones that don’t cost much but generate a huge return.

Step 4: Get Renovation Estimates

After you find a fixer-upper you like, the next step is to get renovation estimates. That way, you’ll know whether your planned renovations will fit in your budget.

If you’re DIYing renovations, you’ll want to estimate how much materials and tools will cost. Looking at materials and tools at a home improvement store or online wholesalers can give you an idea of how much everything will cost.

If some (or all) your renovations need a pro, you should get estimates from different contractors. That way, you know what it will cost to do your renovation — and whether it fits in your budget. And, it’s important to ask multiple contractors for estimates so you can get the best price and quality.

But, choosing the contractor with the lowest estimate isn’t always a good idea. The contractor might have such a low estimate because they use sub-par materials or do shoddy work. Going with a slightly more expensive contractor who has better quality will save you money in the long run — because you won’t have to re-renovate every few years.

Once you’ve found a potential fixer-upper, it’s important to make sure the work it needs fits in your budget.

Step 5: Allocate a Contingency Fund

Renovations always cost more and take longer than you initially expect. So, you need a contingency fund to cover any unexpected renovation expenses.

When you’re renovating a house, it’s common to uncover problems you didn’t know about during the renovation — like mold, water damage, or structural issues. These problems need to be fixed as soon as possible — before they cause more damage. So, you’ll need to spend some of your renovation fund to cover it.

And, you could discover that your renovation needs more materials, contractor help, or scope. All of which can drive up the price of your renovation. Without a contingency fund, these unexpected expenses could blow your budget — or you have to sacrifice some of your planned renovations.

Having a contingency fund means you can still do your planned renovations — while fixing unexpected problems. So, it’s important to set aside part of your budget — around 5–10% — to cover any of these expenses.

Wrapping It Up

Buying a fixer-upper can help you afford a larger house in a better area. And, it lets you customize every aspect of your home — to make it a perfect fit for you. Plus, the work you do on a fixer-upper can increase its value.

But, fixing up a house is a lot more involved than TV portrays it. You have to put a lot of time and effort into a fixer-upper before it looks amazing. And, fixer-uppers with renovations can cost more than buying a turnkey home. It also can take a long time to finish renovating a fixer-upper, so you have to have the motivation to see it through.

If buying a fixer-upper still sounds right for you — awesome! But, it’s important to choose the right fixer-upper. You can do this by being realistic about your skills, lining up financing, looking for the right improvements, getting renovation estimates, and having a contingency fund.

If you follow these steps, you’re sure to get great deal on your dream home (what’s better than that?).

Want the strongest offer for when you find your dream home? Upgrade your offer to all cash with Ribbon. You’ll be able to compete with bigger and more experienced buyers. So, you’ll be more likely to secure the right house for you.

Learn more about how Ribbon can help you get your perfect home today.

 

Tags: Home Buyers

Homebase by Ribbon

Written by Homebase by Ribbon