Buying a Fixer Upper
Posted: June 06, 2018 by Alan Tucker
Buying a fixer upper can seem like a really good idea especially if you’ve been looking for a home and can’t find one that has everything you want. You will probably be able to get a good price, and if you’re handy, the idea of fixing up a place seems ideal. If you are seriously considering this option, there are a few things to consider before signing on the dotted line.
Do the Math
The first thing you will want to do is find a professional that will be honest with you about the value of the home you want to buy and the cost of the renovation. With that being said, you will need to figure out what it is you should be paying for a fixer upper. There is a simple equation you can follow so that the renovation and costs don’t get out of control.
Add up the costs to renovate the property based on an assessment of the condition of the house. During this process, you want to be tough with your estimates and include materials and labor. Now, subtract the home’s likely market value after the renovation. You can figure this out by looking at comparable real estate prices in the neighborhood. Then deduct at least another 5 to 10 percent for the extras you decide to add and the unforeseen expenses that are sure to come up. What’s left should be the offer on the home.
Another important thing you want to include in the contract is a home inspection. This is important to assure you that the home is a good investment. An inspection may reveal that there are structural or foundation problems that would be too costly for you to repair.
Picking the Ideal Project
Look for a project that requires mostly cosmetic improvements. Items such as paint, drywall repairs and floor refinishing pay a great return since they cost so little. New lighting fixtures, siding and updated kitchens and bathrooms also are lucrative improvements.
Sometimes major additions need to be added to bring the house in line with the other homes in the neighborhood. Adding a family room or a third bedroom in a community where there are three bedroom homes will help with the home’s finished value. These renovations are a bit more costly and don’t always have the return, unless it’s an additional bathroom.
If the home is in need of structural repair, there are ways to add cosmetic value within the repair. For example, maybe the roof needs to be replaced and you could add a skylight to add cosmetic value. Think outside the box when making repairs, but be sure not to over improve. You don’t want remodeling investments to raise the value of the home more than 10 to 15 percent above the median sale price of other houses in the area.
If you are invested in a fixer upper and committed to doing the work, you could be on to a great investment.