Fixer-Upper Houses: What You Should Consider Before Buying

When looking for a house to buy, you’re likely to have an innumerable amount of possible options. At one end of the spectrum, you have a house that is “move-in ready,” requiring no work other than just opening the door and moving right in. On the other end of the spectrum, you have a fixer-upper house that may require major renovations. If you’re looking at buying a fixer-upper house, here are a few things to consider first.

What Is A Fixer-Upper House?

If you’re looking at buying a fixer-upper house – such as a home sold as-is – you may already know that it is going to require a certain amount of work before it’s considered finished. There are many varieties of fixer-upper houses as well – some just require cosmetic updates like carpet, paint or flooring. Other fixer-uppers have major mechanical or structural issues.

Fixer-upper houses are popular because they can allow you to invest some of your own time, labor and materials and create your own home equity. Before you consider buying a fixer-upper house, make sure that you understand exactly what needs to be updated and whether you have the time, knowhow and money necessary. It’s all too easy to find yourself in way over your head.

The Pros And Cons Of A Fixer-Upper

Taking on a fixer-upper house is appealing to many people because of the advantages that can come with doing the project right. The challenges of such a project require careful consideration, so make sure you weigh both the pros and the cons of buying a fixer-upper home.

The Pros

There are several advantages to buying a fixer-upper home:

 

The Cons

There is also a negative side to buying a fixer-upper

“Fixer-uppers are a mixed bag, and depending on how old the home is, that bag can be full of a lot of unpleasant surprises,” says Mark Scott, CEO of MARK IV Builders.

While TV shows often make it seem like it’s easy to fix up a home on a tight budget, that’s not always the case.

“Structural issues and other things can often throw a budget totally out of whack,” Scott says. “And if you picked a bargain remodeler, good luck getting them to finish a job that is out of their league. Many don’t have the gumption for challenging structural changes or problems that arise.”

Chip and Joanna Gaines, stars of HGTV’s show “Fixer Upper,” do deserve a little credit, as they’ve said on their show that they recommend home buyers have an extra $5,000 – $10,000 set aside in case problems arise during the project.

8 Tips To Help You Decide

If you’re looking at buying a fixer-upper house, here are some tips to consider.

1. Look At What You’re Working With

When you’re starting to look for a home, it can be hard to see past the worn linoleum flooring or the wood paneling on the walls. But these are easy fixes.

Real estate broker Ali Berry says, “I tell my clients to keep an open mind and look at the layout of the house. The paint, carpet, floors, cabinets, etc., can be changed relatively easily. The main things you want to look for are a great layout, good bones, no foundation issues and good mechanicals (heating and cooling systems, water heater, water pump, etc.). Cosmetic things can be changed, but the flow of a house cannot; well, not without spending a fortune, that is.”

2. Estimate Your Costs High

Couples appear on renovation shows and say they have a $300,000 budget, but then they need to knock down a wall and fix some foundational issues, and suddenly they have an extra $15,000.

That’s not a reality most people live in. That’s why it’s important to figure out your budget beforehand – and stick to it!

Once you find the house you want that’s in your price range, This Old House has a simple equation to figure out how much you should offer.

Add up what it would cost to renovate the property. Be generous on this estimate. Take into consideration all the materials and labor it will take to make this house your home. Subtract that from what the value will be after renovation.

They also advise adding an extra 5% – 10% for any problems that might arise or things you decide to add during the renovation. If there’s one thing the reno shows have taught us, it’s to expect the unexpected.

3. Predict Your Market Value

Another important step in how to buy a fixer-upper is to calculate the value of your fully renovated home. Free online tools like Zillow or Trulia can help you figure out the ballpark, but they can also be wildly off-base and shouldn’t be relied on as a final answer. A good way to estimate your after-repair value (ARV) is by looking at comparable houses in the neighborhood. 

If you’re financing the purchase of your fixer-upper, your lender will use a special type of appraisal for a home being renovated. After the appraiser visits the property, they’ll complete a report that explains how they calculated the future value of home. You can use the dollar amount they provide or use their research to do your own assessment. 

4. Check For An Inspection Clause

Having an inspection is especially critical to fixer-upper projects, because an inspection can help identify problems that can easily blow your budget.

The cosmetic things are easy to spot, but it’s hard to know if the house has foundation problems or a working heating and cooling system during a walk through.

Getting an inspection will help diagnose some of those bigger, more expensive problems. Those types of problems are the kind that can really sink your budget and eat up all the sweat equity you thought you were creating.

It can be tempting not to spend the extra money on an inspection and put money into getting rid of that wallpaper from 1972 instead, but it’ll be worth it. An inspection will give you peace of mind that you’re not going to have any big issues arise during renovation that will take up more time and money. Or if there is an issue, you can either go into renovation knowing that, or you can walk away from it.

5. Remember To Count Your Time Investment

Another major consideration before you attempt to take on a fixer-upper is how much time it will take.

While most TV shows can overhaul a home in a one-hour episode, they don’t often talk about how much time it actually takes. A few shows will mention the time frame, often 30 – 60 days, but this is not realistic for homeowners who attempt fixer-uppers in real life.

“Truthfully, you want a remodeler who will be honest about the time frame. You don’t want them to rush and hastily skip over details, but you also need them to commit and actively work toward a fixed completion date,” Scott says.

In reality, a fixer-upper project can take months or even a year to complete. During that time, you may or may not be able to live in the house. This can leave you with limited living space if you’re able to stay in the house. In the worst-case scenario, you may be paying a mortgage on the fixer-upper and paying rent or a second mortgage while you live off-site.

Personally, when I committed to buying a home that was under construction a few years ago, I ran into this very issue. The project was supposed to be completed by June 1 and ended up not being done until mid-October.

6. Choose Projects Strategically

Another great tip is to prioritize projects by cost and type. One good rule of thumb is to work from the outside-in.

You wouldn’t want to hang your drywall while the roof is still leaking, and it doesn’t make sense to install your carpet while you still have to paint. This is especially true if you’re planning on living in the house while you’re doing all the renovations. Gutting your kitchen might make more sense in the summer when you can count on grilling out on your patio than in the winter when you have nowhere else to eat.

7. Count On Doing It Yourself

If you have the time and skills (or are willing to learn), DIY home improvement will usually be the most cost-effective route – you can even earn back that time and labor in the form of sweat equity should you ever sell. If you do end up hiring out some or all of the work, you’ll want to ask around for recommendations on local contractors. Always try to get multiple bids, especially with contractors that you haven’t worked with before.

8. Don’t Go Overboard

Another tip is to balance home improvement costs with your home’s resale value when considering whether to buy a fixer-upper. Conventional wisdom says that kitchens, bathrooms and adding additional bedrooms offer the most resale value when doing renovations.

The Bottom Line

While they do come with additional hurdles and considerations, fixer-upper houses offer substantial benefits to those willing to take on the challenge and additional work. Namely, the ability to grow and generate wealth and customize a home to their style and taste preferences. While the cons – additional time and money investment – are well known, if a buyer goes into the purchase educated and with eyes open, a fixer-upper house may be an endeavor worth pursuing.