It just needs a little TLC, right? If you’re willing to put in some elbow grease, buying a fixer-upper can be worthwhile. And there are plenty of them around, given the foreclosure epidemic. But there’s a substantial commitment of time and effort, and long periods of time when you will be living in chaos and sawdust. If you’re still up for the challenge, it can be a rewarding experience.
- Be prepared for an extensive search. Many fixer-uppers–particularly those in especially bad shape–don’t command much attention, so you may have to hunt around.
- Keep in mind that “location, location, location” is always the mantra of real estate purchases. Steer away from properties in areas that are looking rundown in general. Is the asking price of that fixer-upper favorable, compared with the prices of other homes in the neighborhood? Make sure the fixer-upper is in an area of reasonably solid house values. That way, your house will be worth even more when your repairs are completed, rather than less because of worsening market conditions in the neighborhood. Try to meet some of the neighbors who might give you some information on what’s been going on in their block.
- Look for the words “fixer-upper,” “needs TLC,” “handyman special” or “diamond in the rough” in your ad or MLS searches. If it’s a foreclosure, you can generally expect it to be.
- Review local listings of foreclosed properties. When banks have to take ownership of a property, they’re generally very motivated to hand it off quickly. Contact a good real estate agent to ask about possibilities and to get your own representation.
- Watch for properties that need mostly cosmetic improvements. Houses that could use new paint, flooring and/or appliances offer the fastest potential turnaround. Bigger problems such as bad roofs or faulty foundations are often prohibitively expensive and beyond the capabilities of most weekend warriors.
- If you find an appealing property with seemingly reasonable repair needs, confirm. Have the home professionally inspected. Specify that the final sale is contingent on a satisfactory complete inspection.
- Accompany the inspector when he or she goes through the house for a blow-by-blow account. You may also need to get additional inspections of particular important systems, such as HVAC and well/septic.
- Get a formal appraisal ($200 to $400) of the home’s value and have your agent work up comparables. If possible, have the appraiser estimate how much the home should sell for after it is restored to good condition.
- Get several bids from contractors of how much it will cost to fix what needs to be fixed. Be sure to check zoning requirements and include permit fees. A rule of thumb would be that the home’s value should increase at least twice as much as you spend on improvements. Calculate the potential value of the house after renovations and be sure that it isn’t higher than comparable houses on the block. Be realistic about repair costs.
- Look for a mortgage that includes funds for home renovation, such as the Federal Housing Authority 203(k) program.
- Be patient. Unlike the folks on TV who make it sound as though renovations happen within a few weekends, fixer-uppers can take a long time to find and much longer to spruce up, particularly if you’re holding down a day job.
- Timing is often more important than the state of the house. If you sell during a hot market, price appreciation can help offset the cost of your improvements.
- Don’t be taken aback by properties that have been on the market for a long time. It’s not unusual for some fixer-uppers to be up for sale for a year or more, depending on market conditions.
- As a general rule, improvements that are invisible to the average home buyer or merely bring the home in line with expected minimum standards don’t add to the resale value. If you make the wrong improvements, such as enlarging a closet or converting two bedrooms into a master suite when you only had three bedrooms to begin with, you won’t see much, if any, return on your investment. Another potential pitfall is over-improving the home compared to other homes in the neighborhood.
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