Buying a dirt-cheap home and spending some money to renovate it can seem like a great idea, but many people are unaware of the amount of effort projects like that take. Weigh up the pros and cons of buying a fixer-upper and present them to your readers in an unbiased manner.
Things to Consider
Do the Math
First add up the costs to renovate the property based on the condition of the house, this should include materials and labour. Next subtract that from the home’s likely market value after renovation, from comparable real estate prices in the neighbourhood. Then deduct at least another 5 to 10 % for extras you decide to add, unforeseen problems and mishaps that have to be dealt with. What’s left should be your offer.
Avoid Major Problems
If the house needs significant structural improvements, many recommend avoiding those properties. Major repairs like plumbing and electrical system overhauls, foundation upgrades and extensive roof and wall work, are usually “invisible” work and hardly ever raise the value of the house enough to offset the cost of the renovation.
Pick Projects That Pay
The ideal fixer uppers are those that require mostly cosmetic improvements; paint touch ups, drywall repairs, floor refinishing - which generally cost much less than what they return in market value. New lighting fixtures, doors, window shutters and siding as well as updated kitchens and bathrooms are also lucrative improvements.
For maximum resale value, remodeling investments should not raise the value of your house more than 10 to 15 % above the median sale price of other houses in your area.
DIY Whenever Possible
It’s usually most cost-effective when homeowners do most of the work themselves. If you’re not the hands on type, be prepared to devote a considerable amount of time to supervising contractors.
Line Up The Money
Most people don;t have much extra cash after making the down payment and paying closing costs, so coming up with additional money to cover repairs or remodeling can be difficult.
For small projects, credit card debt is an option, interest rates are high and the interest isn’t tax deductible, but there are no up-front costs, such as appraisal and origination fees.
The most popular funding choice for a fixer upper is a renovation loan, either through a home equity line of credit or a mortgage.