Buying A Fixer-Upper House: Pros And Cons. It’s no secret that buying a house is an expensive ordeal. However, if you’re willing to put the work in, you could purchase what’s known as a “fixer-upper” at below market price. This type of home buying is a serious investment, though, so make sure you’re committed before going through with the purchase.
If you’re 100% ready to look at fixer-upper houses, let’s walk through the buying process and uncover the pros and cons of a fixer-upper purchase.
What Is A Fixer-Upper?
A fixer-upper is a house available at a lower purchase price because it requires major maintenance work. While you can likely still live in a fixer-upper, you’ll need to spend a lot of time and money on structural and/or cosmetic improvements. You may benefit from a fixer-upper if you’d like more house for your money or you’re interested in flipping it to make a profit.
How To Find Fixer-Upper Houses For Sale
The easiest way to find fixer-upper homes is to work with a real estate agent. An agent or REALTOR® has inner knowledge and connections that can help you find just what you’re looking for. In addition, they can access the multiple listing service (MLS) and find homes that aren’t publicly listed yet.
If you’re looking for the right fit, our friends at Rocket HomesSM can match you with one of their Verified Partner Agents who can align on your goals as well as your budget to help you find the home you can make your own.
You also have the option to attend an auction and buy a foreclosed home as a fixer-upper. However, purchasing a foreclosure at an auction means you’ll buy the house as-is.
Buying A Fixer-Upper In 6 Steps
If you’re thinking about buying a fixer-upper home, you might want to keep the following tips in mind.
1. Get A Home Inspection
A home inspection can cost you a couple of hundred dollars, but it’s nonnegotiable if you want to buy a fixer-upper. A qualified home inspector will perform a thorough investigation of your prospective home and provide you with a report that outlines all the repairs it will need.
Without a home inspection, you may have no idea that the home needs new plumbing, the septic tank needs to be replaced or the foundation is cracked. A home inspection helps you avoid unpleasant surprises as well as budget for and prioritize projects.
A home inspection is a necessary part of any home purchase, but especially with a fixer-upper.
2. Estimate Renovation Costs
When you buy a fixer-upper house, you’ll want to make sure you can comfortably afford to turn it into the space you desire. Create a list of every project you intend to complete and price out the materials and labor cost (if it requires a contractor).
It’s best to do some online research and get quotes from contractors. Although you won’t be able to come to an exact cost for everything, you can figure out a ballpark estimate that allows you to budget accordingly and decide whether the investment is worthwhile.
3. Determine If A Permit Is Required
Some renovations may require permits. The location of your home will dictate which renovations you need permits for, but in most town and cities, permits are necessary for:
- Structural work
- Window installation
- Room additions
- Sheds and garages
- Fences
- Plumbing and electrical work
You can visit your municipal government office online or in person to apply for a permit. Depending on the complexity of your project, you may need to provide detailed plans.
4. Identify What You Can Renovate Yourself
There’s no denying that DIY renovations will save you a ton of cash. After all, contractors can be pricey – especially if you use them for every project. If you’re handy (or have some friends or family members who are), figure out which projects you can renovate yourself.
While you may not be able to tackle the electrical and plumbing, you may be able to paint and apply a backsplash without a contractor’s help.
5. Explore Fixer-Upper Loan Options
Many lenders offer loan options specifically for homes in need of renovation or home improvements. Two financing options canhelp you pay for the cost of your home as well as the renovations. With a Federal Housing Administration (FHA) 203(k) rehabilitation loan, you can purchase your home and put a reserve in escrow to fund renovations.
6. Make A Smart Offer
If at all possible, you should avoid overpaying for a fixer-upper. The whole point of buying a house that needs work is getting a good deal on it. Make an offer that strikes a balance between a good deal and the cost of necessary repairs.
With any offer, you should include contingencies, which are exceptions that allow you to back out of a purchase if something comes up. A couple of common contingencies are inspection and appraisal contingencies. If an inspection reveals a major problem or the home appraises for lower than you offered, you can back out.
You should also be able to negotiate a selling price. If the home you’re interested in has several flaws, you may have more bargaining leverage. Work with an agent to make a smart offer and handle any counteroffers. Don’t be afraid to walk away if the seller isn’t willing to negotiate.
Pros And Cons Of Buying A Fixer-Upper
Here are some pros and cons of fixer-upper houses to keep in mind.
Pros
A lower purchase price: Although you’ll need to spend more on renovating it, a fixer-upper house will come with a lower list price and down payment requirement (if not based on the percentage, then on the lower price.
Less competition: Generally speaking, you’ll find less competition for fixer-upper homes, so you’re more likely to land the home you’d like at a great price.
The chance to customize your home: Once you buy a fixer-upper house, you as the homeowner have the freedom to do whatever you please to it. Don’t like the kitchen? Remodel it. Want a deck? Build one. Want a bigger living room? Expand the space.
Quality control: With renovations, you’re in charge. You can choose the materials, colors, contractors and everything else.
Cons
Expensive renovations: Depending on the renovations, you may end up barely breaking even – or spending more money on a fixer-upper.
Difficult budgeting: While you can run the numbers and estimate how much your renovations will cost, it’s almost impossible to come to an accurate figure. Surprise costs will always pop up.
Unexpected issues: Even if you get an inspection, unexpected issues will almost always arise – especially if the house is older.
Long-term construction: Unless you live somewhere else while you’re renovating your fixer-upper, you’ll have to live in a construction zone for as long as it takes to complete your renovations.
Should I Buy A Fixer-Upper?
The right decision on buying a fixer-upper house depends on your unique situation. A fixer-upper house may be a good option for one house shopper and a bad idea for another. Consider your budget, needs, preferences and lifestyle before moving forward on a fixer-upper purchase.
A fixer-upper may be a good investment, but it can also be a huge money pit if you estimate renovations incorrectly, contract out for most projects and skip an inspection.
To ensure a fixer-upper house is well worth the money, look at comparable homes (known in real estate as comps) in the neighborhood. Then add your estimated cost of renovations to the purchase price. If you’re making money on the home, it’sprobably a good investment.
The Bottom Line
At first glance, a fixer-upper may seem like a great deal you can’t pass up. Once you realize how much you need to spend on repairs and renovations, however, you may have a different opinion. Before you make an offer on a fixer-upper, do the heavy lifting and be sure it’s a worthwhile investment.
Source: https://www.rocketmortgage.com/
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