Purchasing a fixer-upper home can be a tempting idea for a number of reasons. Of course, there is the lowered price tag of a fixer-upper, but there is also the allure of being able to inject your own style into your home from top to bottom. Fixer-uppers are also a great investment for those who wish to “flip” a property to make a profit.
There are, however, a few important things to consider before purchasing a fixer-upper, regardless of why you are buying it.
1.) You may not be getting the bargain you think you are
Because of the exorbitantly high home prices in some areas of the country, fixer-upper homes in those areas can actually be in high demand, which drives their price up. While they are still generally cheaper than a “move in ready” or recently remodeled home, the cost of fixing up a fixer-upper in an inflated market may end up being about the same as if you just bought the more expensive move-in-ready home. If you are an experienced “flipper” that can get the property upgraded and back on the market quickly, then you might still come out ahead in even an area with inflated fixer-upper prices. However, if you buy a fixer-upper to flip and take several months to do so, you might find your profit margin is significantly slimmer than you originally anticipated and may even find yourself losing money.
2.) Some issues are not worth the effort
Some fixer-upper homes have good “bones” – meaning the structural integrity is still good – they just need a complete cosmetic overhaul. In other cases, however, there are actually structural issues with the home and those can cost you dearly. Homeowners seeking to investors like we buy houses already own distressed houses. One of the most expensive issues a home can have is foundation issues. To fix foundation issues, the home will often have to be moved or jacked up off the foundation entirely, while time consuming and costly repairs are made. This is why it is extremely important to get an thoroughly detailed and meticulous inspection done by a well-qualified inspector.
3.) Location, location, location
Where a property is located has a huge effect on its potential value. A run-down property in an area quickly undergoing gentrification can skyrocket in value, but a decent property in an area quickly going to seed can go in the opposite direction. Again, whether this is a good or bad thing depends on what you are buying the home for. If you are buying a fixer-upper as an investment property that you hope to sell for a profit, then it is very important to look at details like whether it is in a good school district, close to a freeway or public transportation and what kind of amenities are nearby. If you are buying a fixer-upper to live in yourself, then you only need to look at what is important or valuable to you.
4.) Time, energy and effort vs. initial price tag
An important thing to consider when buying a fixer-upper is how long it will legitimately take to make necessary renovations and to pay for them. Some people want to buy a fixer-upper because they don’t have the money up front to purchase a more expensive “live-in-ready” home – so they need to live in the home for a while before making renovations. This is fine if all the home needs is a cosmetic overhaul, but can be problematic if it needs a new sewer system or be completely gutted. On the other hand, some people are perfectly happy to live a more bohemian lifestyle for a bit to have the home of their dreams. Only you can decide if this is right for you, but it’s important to at least try to determine in advance how much inconvenience you are willing to undergo to fix up a home yourself. When purchasing a fixer-upper to flip of course, this is not generally an issue as most “flippers” don’t expect to live in the home while it is being fixed up.
Flipping properties definitely has the potential to generate a handsome profit, and living in a home you completely renovated yourself is of great value as well. Before putting money into a fixer-upper, however, it’s important to have as clear a picture as possible of what you are in for. Unexpected surprises can always happen, but doing as much homework as possible before signing on the dotted line can save you significant hassle, stress and even money.