Buying a fixer-upper home may seem like a great idea, especially when you can get a great deal on it. Sometimes it is just as perfect as it seems, but there are certain things you should consider before you jump into this type of purchase.
Don’t focus only on the low price you get for the home. You have to look at the big picture. If you don’t, you could find yourself buying a money pit that could leave you with buyer’s remorse.
Look at the Neighborhood
When you buy a home, whether it’s a fixer-upper or not, you buy into a neighborhood. You should know what that neighborhood is like before you settle on purchasing a home. Will the neighborhood support the home you are about to create? This is especially important if you are going to do a complete teardown or completely change the face of the home. Will the home look like it fits in or will it stick out like a sore thumb?
If the home will stick out, you may have to worry about its value. If the homes around the home you buy won’t support the value, you won’t be able to sell the home for the amount you may have hoped. Do your research on the neighborhood and even see if anyone else has bought a home in the area and fixed it up. If they did, ask what type of return they received on their investment to see if it’s worth it for you.
Get an Inspection
You’ll want to know long before you get far into the underwriting process the condition of the home. Even if everything looks okay to the naked eye, there could be major issues that you are missing. The inspector will find those major issues for you and let you know about them. You can then decide if this is the right purchase for you. If you are financing the home, it’s important to have an inspection contingency on the contract so that you have the right to back out of the purchase if you can.
Once you have the inspection report, you can decide if this home is something you want to undertake. Are the issues worse than you anticipated? Will the home even pass an appraisal if you plan to finance the home? Can you afford the necessary repairs, let alone the cosmetic changes you wanted to make?
Beware of Major Issues
Your inspector should look for things like asbestos and lead paint. If either of these issues are prevalent, you will not be able to secure financing unless the issues are fixed. This leaves you with the option to pay cash for the home or apply for the FHA 203K loan, which provides funds to fix up a home as well as buy it.
Asbestos and lead paint issues are nothing to mess around with on your own, though. You will need professionals that can properly remove the issue for you. This could be not only a financial issue but also a health issue. You won’t be able to live in the home or even be near it until the issue is resolved.
Pay Close Attention to the Layout
There’s not much you can do about the layout of a home no matter how much you renovate it. Pay close attention to it as you look at the home – is it a layout that people usually like in that area? For example, do many of the homes in the area have an open layout? If so, and this home has a closed layout, it may not sell as fast as you would like. Know your audience and what people in the area like before you commit to buying a home, especially if you plan to renovate it and flip it as quickly as possible.
Know the Integrity of the Structure
One area you don’t want to avoid is the home’s structure. How is the foundation? Are the floors straight? Do the walls have cracks? These large issues could cause problems with financing the home as well as be costly to fix. Do you want to take on a job that big or were you just looking for a home that you could make cosmetic renovations on and flip it?
You’ll Need a Contingency Budget
No matter how good or bad the shape of a home is when you buy it, you’ll need a contingency budget. We recommend giving at least a 20% cushion to your renovation budget. This way you’ll know if something unforeseen occurs, especially when contractors knock down walls or mess with electrical or plumbing issues, that you’ll have the funds to fix the issue.
Buying a fixer-upper either to live in yourself or flip and sell for a profit can be exciting. Just make sure you take your time and decide if the project is right for you. The more research you do, the better your chances of buying a fixer-upper that gives you a decent return on your investment.