Many people who are looking to purchase a home as soon as possible while getting a steep discount choose to buy a fixer-upper instead of getting a mortgage or continuing to rent while they save for a more expensive home. That can seem like a great idea, but in some cases it might not be the right choice.
In order to be sure that a fixer-upper home is right for you, there needs to be a clear understanding of how much repairing that home will really cost. Some unexpected expenses are bound to appear because it isn't possible to plan for everything, but the more care that is taken in the early stages of the buying process, the better off the buyer will likely be.
Fixer upper properties present a fun challenge to homeowners who enjoy making repairs and taking on DIY projects. Buying a fixer upper can also enable a home buyer on a budget to obtain a property in a more costly or popular neighborhood than what might otherwise be possible.
However, there is an art to purchasing fixer upper properties, whether they be in an East Nashville neighborhood or anywhere else. Knowing what to look for and what problems to avoid can help your real estate transaction go as smoothly as possible.
Plan Ahead For What You Want to do With the Property
When choosing a fixer-upper, buyers should be clear about their end goals for the home. Is the intention to flip it for a profit? Or is the goal to create a home for their family? Both are worthy goals but have very different outcomes.
For a flip project, the best properties are those that need only cosmetic upgrades and minimal structural improvements. For these projects, buyers should be aware of the home's starting value and then carefully choose projects that increase that value. An updated bath, a modern kitchen, and improvements to the home's curb appeal that can be completed quickly will help increase the home's value and the potential profit of the flip.
When purchasing a fixer-upper as a future family home, buyers should find a home that will work long-term for their needs. A 1930s farmhouse with a rambling yard may seem like a dream come true, but the inconveniences of limited bathrooms, few closets, and a closed floor plan may not work for the buyer's lifestyle and is cost prohibitive to fix. These buyers may be better off finding a property with a home whose current footprint fits their lifestyle.
Be Realistic About Your Budget, Time Commitment, and Needs
While a fixer-upper may be the stuff of your dreams, you live in the here and now. Buyers should be realistic about every aspect of the home buying and renovation experience including budget, DIY skills, and renovation costs. Make sure that you budget appropriately for the cost of labor, materials, and unforeseen expenses. It's easy to write a particular renovation off as unimportant or something you can do yourself only to find out later that it's an issue that requires professional help. Being realistic with your budget from the beginning will help you create your dream home.
Look for Cosmetic Fixer Uppers
Cosmetic improvements, like painting the walls and refinishing the cabinets, are all changes that cost little but pay back well at the time of sale. Structural improvements are less lucrative, because buyers expect the major systems of the house to be in proper working order when the house is sold - and these systems can be quite costly to repair or replace.
To get the most return on your investment, especially if you are not well-versed with major repairs, it's typically a good idea to purchase a fixer upper that needs mostly cosmetic improvements.
What About Problems That Can't Be Seen?
Even the best home inspectors don't have x-ray vision. They can't see through walls or into the inner workings of systems and appliances. In short, they won't be able to find things that are truly hidden. As work on the fixer-upper home begins, walls may be opened up to rewire or re-plumb the home, and other changes may be made. During this time, there may be issues found that were completely unexpected and could cause costly unexpected expenses in a budget. Planning for that from a monetary standpoint is vital, or work on the house could come to a stop while other sources of funds are being sought. Most of those types of delays can be avoided with proper planning.
Did the Home Inspection Really Catch Everything?
While a buyer may understand that the home is considered a fixer-upper, they should still retain the services of an experienced home inspector. With any rehabilitation project, the buyer can readily see that the home has many issues. The inspection can help uncover issues that are not readily visible but may be deal breakers. Homes that need an electrical or plumbing overhaul are fine for some buyers but may be beyond the budget of others. An inspection helps the buyer make an informed decision about the property and can help inform the future rehabilitation of the home.
The fine print in any home inspection will let the buyer know that there are no guarantees the inspector won't miss something. That might seem frustrating, but home inspectors are only human. They can miss problems, or see an issue but not realize how far that particular concern may extend. With that in mind, the home inspection can still be a very valuable tool to work through problems and try to negotiate the price of the home down to something lower if significant issues are noted. Expect there to be some problems beyond the scope of the inspection, especially when buying a house that clearly needs work.
Home inspectors will check most of the major systems of the home and point out potential problems that they see. However, getting an inspection is only the first step in determining the needs of the home you wish to buy, no matter where your Nashville real estate may reside.
Once an inspector has seen the property you wish to purchase, use the report to determine what parts of the house will need to be repaired upon move in. Work with a contractor to get an estimate and a second opinion about which repairs should be prioritized, and what their cost may be. You may need to meet with several different types of contractors to get a full picture of the extent of the work that needs to be completed.
Get the Right Kind of Loan
Many types of loans will not cover the cost for repairs or improvements on the property. If you expect to borrow money to make improvements to your home at the time of purchase, work with your lender to see if a renovation loan would make sense for these purposes in your situation. Be up front with your lender about your expectations to ensure that you can secure a loan that will meet your needs.
Plan Repairs Carefully
Keep in mind that some repairs will influence other repairs. For example, a home with foundational problems should not undergo interior renovations like a kitchen upgrade until the foundation problems have first been addressed. Talk to your contractor about the different types of repairs that need to be completed on the property, so your contractor can advise you about the order of repair. This will help you go into the process with your eyes open, so you can plan for your repairs ahead of time.
Prepare to Do Some Dirty Work
If you plan to do the work on the fixer-upper home yourself, there are plenty of things to consider. Permits, inspections, and requirements in the city, county, and state will all matter. How much skill is needed to make some of the changes and corrections will also matter, and in some cases the job may become too big and professional help will be needed. Knowing who to call at that point is also very valuable, because not every contractor will charge the same or do things the same way. Getting the best person for the job matters financially, but quality can also be a big factor when the work is being done by someone else.
Basically anyone who buys a fixer upper needs to be prepared to do some dirty work when they take possession of the house. If you're not comfortable pulling up carpet, painting walls, scrubbing floors, sanding, staining and doing other similar tasks, then you may want to talk to your real estate agent about changing your home-buying goals. It can be difficult to be cost effective when paying people to do every repair, meaning many of the smaller projects that require time and effort will fall to you to complete.
Once the inspections have been completed and the full extent of the repairs are known, talk to your real estate agent about re-negotiating the price for the home. Your real estate agent will be able to tell you whether or not a renegotiating is realistic and if so, how much you can hope to knock off the price of the house. Be prepared to walk away from the property and keep looking if necessary. This puts you in a position of power and better ensures that you'll end up with a deal that meets your needs.
Is the Home Actually Worth the Final Cost?
In some cases fixer-uppers just aren't worth the money, even if they can be bought cheaply. They may have too many problems, and those problems can translate into more and more money until the cost of the home adds up to much more than it will actually appraise for when the work is completed. If money isn't an issue and the house is very desirable some buyers may still choose that option, but many people will walk away and find a house that works better for them, so they can protect their finances. Contact a real estate professional to determine if buying a fixer-upper is the right choice.
Working on a fixer upper can be a very rewarding experience when done correctly. With this information, and the help of a trusted real estate professional, you should be able to move forward with confidence on your next big project.
The Ashton Real Estate Group of RE/MAX Advantage
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