Fixer Upper House

Is it worth it to buy a fixer-upper house?

Buying fixer-upper homes is currently a popular investment in the housing market, especially since lower-priced houses increase housing confidence in home buyers. On the one hand, it is a great way to purchase a home below market value and sell it for more than you paid. On the other hand, it often seems to be more work than people anticipate, and sometimes the final product doesn’t end up being worth as much time, effort, and money as people put into it.

So, is a fixer-upper home worth it? The answer depends on a variety of factors and your current situation. Thankfully, we have a list of pros and cons as well as tips and recommendations if you’re trying to decide if a fixer-upper home is a right decision for you.

Before anyone considers purchasing a fixer-upper, they should ask themselves a few simple questions. The first may seem a silly one to ask, but it’s a question worth pondering. Do you prefer newer or older homes? This answer may seem straightforward – either yes or no – but it isn’t. Once you’ve answered your question, ask yourself why it is you prefer older or newer homes. You may discover you’d prefer an older home with the amenities of a newer home. If the answer to this question is Yes, you may proceed to the next set of questions.

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Is a fixer-upper for you?

  • Do you like to take on new projects?
  • Do you have a vision of how something should look?
  • Are you creative, hands-on, or handy?
  • Are you patient?
  • Are you a team player?

If you answered Yes to 3 or more of these questions then perhaps you should buy a fixer-upper. But, before you decide for certain read on to see whether or not a fixer-upper is really for you.

If not, find yourself a pretty turn-key!

For those who love the charm and characters of the older homes – the archways, mouldings, hardwood floors, architectural details, the interesting little quirks like hidden closets, doorknobs, etc. – but wish to have a more streamlined look with modern amenities, renovating a home might be the right thing for you.

Fixer Upper House

How to Find a Fixer-Upper

Before you go house hunting, figure out your (and your spouse’s, if you’re married) must-haves—including renovation projects you’re willing (and unwilling) to tackle. After that, an experienced real estate agent can help you narrow down your best options. Here are some of the most important things to consider in order to find the best fixer-upper:

  • Location. You can fix many things about a house, but there’s nothing you can do about a lousy neighbourhood or a 20-minute drive to the nearest grocery store. So don’t compromise on those. Look for a house in an awesome community that fits your lifestyle and that future buyers will like too.
  • Appreciation. This is just a fancy term for home value growth. Look for a fixer-upper that’ll grow in value over time. Research the history of home values and businesses in that area. Are home values rising? Is the number of businesses increasing? Those are good signs! A hip location that’s in high demand is going to help boost value.
  • Inspection. While a home inspection is important to do before buying any home, you want to pay attention to the results on a fixer-upper. An inspection can confirm issues you already plan to fix, but it can also reveal layout or foundation issues that prove the house to be too big of a project for your budget.

How to Handle Renovations

While you might be picturing yourself laughing uproariously in cute coveralls while swinging a sledgehammer or slinging paint, renovating a fixer-upper doesn’t always look like what you see on TV. In real life, you’ll get ready for work with sawdust on your clothes and paint in your hair. But it’s worth every minute if you enjoy it and love the house.

Here are some tips for planning your fixer-upper renovations:

  • Make a budget. To prevent costs from spiralling out of control, you need a home renovation budget. Layout the projects you want to be done and price them. Get bids and time estimates for each project, then rank them according to priority and start a detailed budget for the project you want to be done first.
  • Decide to DIY or hire a contractor. Once you know what you want to be fixed, you can either tackle home projects yourself or—if a project is beyond what you’re willing to handle—hire a contractor. If you start doing DIY and then decide halfway through to bring in a pro, your costs can easily explode outside of your budget—so stick to a plan!
  • Don’t overbuild the neighbourhood. Be careful not to go switching everything out for marble or adding custom features. If you go all out and upgrade the house to be the most expensive one in the neighbourhood, it’ll be hard to get your money back when it’s time to sell the house to future buyers.
  • Cash flow project by project. If you don’t have the money to get everything done all at once, it’s okay—move at the speed of cash. Hold off on starting a project until you have the cash to get it finished. That way, you won’t be burdened by debt—and you’ll thank yourself when the unexpected costs of homeownership come your way.

The pros

  • You have more creative leeway. You can build, renovate, and design the house the way you want.
  • You can decide what places in the home you want to spend more money on (i.e., a better kitchen or a better bedroom).
  • You have the opportunity to make the home worth a great deal more than you paid.
  • You can likely flip the home for more money.
  • Fixer-upper homes are typically 8% below the market value.
  • You will pay less in property taxes because they are calculated based on your home’s sale price.

The cons

  • Most fixer-upper homes are not move-in ready.
  • Renovations are costly.
  • You also don’t have an exact total of what everything will cost, making the financial bottom line uncertain.
  • Fixer-upper homes can be a risk. You never know when things are going to go wrong, so you have to anticipate possible complications.
  • If you need to make structural changes, you’ll need a building permit, which is around $1,000, according to HomeAdvisor.
  • It can take months or even longer finish a fixer-upper.

Do a home inspection.

If you are interested in a fixer-upper home, you want to begin with a home inspection. The inspector will likely be able to determine whether the home is worth the investment or not, depending on the severity of the necessary renovations.

Note that if the necessary improvements in the house are structural, such as roof or wall issues, it’s likely not worth the investment. These type of renovations are complicated and extremely expensive. They are also not typically noticeable by potential buyers, so they fail to raise the value of your home enough to make up for the money you invested. However, if you have a written report from your home inspector listing the major issues and the estimated repair costs, you might be able to get the seller to lower the cost of the house to account for the added repairs you’ll have to do.

Get an estimate of renovation costs.

Deciding if a fixer-upper home is worth it is heavily influenced by the estimated cost of renovations. As stated above, home inspectors can often help you with this. Note all of the necessary renovations and how much they will cost by using a home inspector or a contractor; it’s better to over quote this than under quote. Then you want to subtract this from the home’s projected market value (after repairs and renovations). You can estimate a home’s market value by researching the neighbouring homes’ values. Finally, you need to deduct 5% to 10% more for possible complications and other possibilities.

Determine if you need permits

Depending on your area, you might need permits to do certain renovations. If you build without obtaining the proper permits, you could have difficulty selling the house in the future. Make sure you have the money to get the required permits before committing to remodelling.

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Identify the skills you have and what you can DIY

Part of purchasing a fixer-upper is having to do much of the work on your own. Decide if you have the skills to do the necessary renovations. If you can do most of the repairs by yourself, figure out what you can DIY and hire someone to do the rest. If you’re doing most of the labour, all you need are the parts and equipment for the renovations, and you won’t have to waste money paying someone else.

If you don’t have the ability to do a large chunk of the workload yourself, consider staying away from a fixer-upper home. Hiring someone to do most of the work for you will likely cost more than the renovations are worth in value.

Make sure you have the time—and the motivation.

Fixer-upper homes require a considerable amount of time. If you think you’re too busy to manage the home renovations, consider going with a move-in ready home instead. Especially if you delay pressing repairs, you could risk losing money and value in your home.

Along with a time sacrifice, fixer-uppers require motivation to deal with such a huge project. Ensure you have the motivation and determination to finish renovations before committing to a fixer-upper home. You don’t want to take the plunge and buy the home just to get burned out halfway through and regret your decision.

Check financing options

Buying a fixer-upper home is more financially complicated than your typical finished home; you will need money for the routine down payment and closing costs, but you will also need money for the home repairs and any possible complications in the renovation process.

If you don’t have enough money for the renovations upfront, there are borrowing options such as the 203(k) loan that is meant for home repair, improvement, and reconstruction. A multitude of other loan options can ease financial difficulty.

Avoid being house poor.

Being house poor is when you spend the majority of your income on your homeownership. This can include your mortgage payment, property taxes, utilities, maintenance costs, etc. If choosing a fixer-upper home is going to take the majority of your money, you’re most likely better off to wait until you have additional income to handle the financial burden.

Take into account your debt-to-income ratio (DTI) when deciding if a fixer-upper home will make you house poor. Your DTI is all of your monthly debt payments divided by your gross monthly income. Generally, 36% or lower DTI is ideal.

Plan for complications

With fixer-upper homes comes unpredictability. Some unexpected issues and costs can leave you scrambling if you’re not prepared. Although you can’t predict the future, you can still take precautions, so you are as prepared as possible if something goes wrong, whether that be additional expenses, time constraints, etc. You don’t want to be left in a tough spot because you assumed everything would go as planned.

Why You Should (or shouldn’t) Buy a Fixer-Upper

What to expect

A fixer-upper can be a great way to get into a larger house or a better neighbourhood than you might be able to get into otherwise. Before you open the door and walk down the long and winding road of home renovations, you’ll need to figure out a few things. You should take into consideration whether you will be planning to live on or off-premises. It’s more economical to live on-premises, but for those homes undergoing extensive remodels, this may be unpleasant or not even an option. But, if you do choose to live on the premises, you will have to be prepared to live with dust – a lot of dust. Your home will be a construction zone for well up to a year or beyond.

Think about whether you’ll be doing most of the work yourselves or hiring experts (recommended. Highly recommended.) You will most likely be living out of suitcases and moving from room to room while work is in progress. You will have to live without a real or finished bathroom for some time. You will have to live without a real or finished kitchen for a significant amount of time. If you have children, we strongly urge you to live off-premises for health and safety reasons. If your renovations are minor, new kitchen cabinets and appliances, ripping out wallpaper, shag carpeting, tile or installing hardwood floors, and plan on fixing up your home slowly, over the period of a year or two or even longer, then you’ll be able to stay at home. Still, you’ll need to be organized and plan well to accommodate the loss of use of certain rooms.

Figure out a budget

The money you save on a house will go into the renovations. There are savvy and cost-effective ways to save money, but you never want to do anything on the cheap, and you never want to sacrifice quality. As with any major purchase, get the best that you can afford. Saving a few dollars here and there won’t amount to any great savings and may give you more of a headache than satisfaction. Make a budget and stick to it.

Figure out where you may want to splurge and where you may want to be more economical. You never want your well to run dry. Make sure there’s enough padding for a rainy day and make sure there’s enough in case disaster strikes… When planning your budget meet with professionals to get estimates from them. You’ll need to think about the cost of materials, supplies and labour. In the end, you’ll need to have a hard look at the overall picture.

Will it be worth your time and money. Is this going to be a good investment? Will improving this house increase the value of it in the near future and the distant future? Write everything down, make a list of pros and cons, and then ask yourself if this is something you want to do and whether it will be worth your while and your finances.

Expect the unexpected

Things go wrong. Things can go very wrong. Expect some setbacks and don’t be shocked by the major ones. They are bound to happen – a new oven or fridge may not have left the warehouse even though it was due to be on your doorstep a week ago. The hardware you ordered for your cabinets looks terrible, or worse, the manufacturer messed up the order and shipped the wrong stuff. All of these are relatively small things and will, in time, resolve themselves.

Take a deep breath. In older homes, you may find that sizes for today’s items, such as appliances, plumbing, electrical items, may be quite different from what you have room to work with. Adjustments will need to be made, which will add to your overall renovation times and costs. You may discover that you need to fix something you had no idea was broken or installed improperly.

This happens quite frequently. Your older home’s electricity may not be up to date to handle all your new kitchen appliances, or something’s gone wrong with the plumbing. Then there are the worst-case scenarios – there are major structural issues.

Have an inspection

Has your home inspected before you purchase your house and be sure to tell the inspector that you will be renovating the home? A home inspection will set your mind at ease and let you know that your investment is indeed a sound one. Or it will allow backing out and running away. If your home does require structural improvements or needs extensive “hidden” repairs such as plumbing, foundation work, wall repairs, etc.) you may want to weigh the pros and cons of those repairs.

“Hidden” repairs are those that are invisible to the naked eye and therefore, despite their expenses – which are considerable – are rarely worth the price tag as they most often will not raise the value of your home enough to offset the costs of the repairs and the renovations.

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Be prepared for it to be time-consuming

Whether you do your renovations on your own, with partial or full help, be prepared for the time the renovations will take. This is especially true if you plan on doing most or much of the work yourselves. You will lose your free hours and your weekends to your home. And many say they were prisoners to their homes until the projects were complete.

Most agreed, after having gone through a home renovation once and having done the work themselves, that should they do so again a second time around, they would hire help and move out during the renovations. Not one person, however, ever regretted their decision to buy and renovate a fixer-upper.

Buying a home is complicated and stressful enough, so unless you’re 110 per cent committed to investing the time, money, energy and elbow grease into repairing a house, you may want to buy move-in ready. If you’re starting and can’t afford to pour unexpected costs into a big project, buying a home as-is can be an easier introduction to homeownership. On the flip side, DIY-ing your dream home comes at major costs but could be a good move if you have the resources and know-how to do so.

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