Should I buy a fixer-upper?
Sunday, October 14, 2018
What adventurous young--or not so young--couple hasn’t dreamed of buying a battered fixer-upper, then using their hard work and imagination to turn it into a showplace? It really is possible to buy a downtrodden house at a great price, invest your time and money improving it, and end up with a home that is worth significantly more than your total investment.
A house doesn’t have to be 50-year-old wreck to be a fixer-upper candidate either. A frumpy 30-year-old that needs updating will work. And the sight of happy people high-fiveing each other on an HGTV show after demolishing their old kitchen cabinets with a sledge-hammer...well, it just makes you want to jump in and tackle a remodel project yourself.
Then again, a fixer-upper gone bad can stress both your marriage and bank account. Here’s some questions to ask when evaluating a potential purchase:
1) Is it in a good neighborhood? No matter how great the price is, improving a home in a less-desirable neighborhood is a financial mistake. Realtors and professional investors recommend buying the least house in the best neighborhood, or at least a not-so-good house in a good neighborhood. Buying a home in a neighborhood that is experiencing an upturn can also be a good strategy. Look for updated facades and new landscaping in nearby houses. Your realtor can tell you which areas are on the upswing.
2) Does it have a workable floor plan? It might seem illogical to worry about the floor plan in a house that you are planning on shredding. But it’s important, because only so much relocating-of-walls can be done before a remodel goes over budget. Also, be sure to have your home inspector show you which walls are load-bearing, because they are much more expensive to change. Remodeling bathrooms and kitchens can be expensive, but moving a bathroom or kitchen to a new location is very expensive.
3) Can you afford it? Make a generous estimate of all the remodeling costs. Then add 25%. It always costs more than you expect, plus almost every homeowner adds a couple of extra touches along the way, so you should expect your budget to inch upward as you proceed.
4) Does the combination of sweat-equity and cash investment that is required match what you are able to give the project? The best deals look genuinely creepy and need the most work. They can be a good choice if you have the time and money to invest and, also, can wait awhile before moving in.Time equals money, both in your personal time required to do the work yourself and the monthly overhead costs (taxes, insurance, utilities) of keeping a house that you can not yet occupy. The less time you have available to work on the house--weekends, nights, vacation-time--the more money you need to allocate to hire tradesmen or contractors to do a larger portion of the work.
5) How much camping-out can you tolerate? Washing dishes in the bathtub is only amusing for the first week. Also, major remodeling creates an amazing amount of dust. It may not be healthy to be in the house during the most brutal part of the work. Moving into a fixer-upper in-progress too early can simply be too stressful, so be sure to allow a reasonable amount of time before planning to move in.
6) When the dust clears, is it a good investment? Does the purchase cost + out-of-pocket expenses for materials and professional labor + a reasonable allowance for the value of your own time = at least a little less than what the house would sell for when you are done? Not that you would sell your labor of love right away, but nobody wants to lose money on a major investment. A experienced realtor or professional appraiser can give you an rough idea of what the house will be worth when completed.
We recommend having three advisors to help you evaluate a potential fixer-upper purchase: a trusted realtor, home inspector, and contractor. Your realtor will help you find the good neighborhoods and best deals. A home inspector will tell you the condition of the home, along with what immediate repairs it needs. Also, some home inspectors, like us, are also building contractors and can give you preliminary advice on a remodeling strategy. But ultimately, it’s best to have a knowledgable contractor, who you can count on to do at least part of the work, to give you key estimates and further advice.
Also, see our blog post What are the problems to look for when buying a homeowner remodeled house?
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