It looks easy on TV, right? Home buyers with limited budgets but unlimited enthusiasm buy a diamond in the rough and transform it into their dream home – or a place they can sell for a tidy profit.
So you may be planning to look for a place you can afford now and fix later, when you have the time and money. Many have done it, but remember that reality isn’t the same as reality TV. A fixer-upper needs a lot of elbow grease, time, imagination and patience, especially if you’re renovating and living in the home at the same time.
Or you may have enough money to buy a fixer and complete everything before moving in. Either way, here are some things to consider.
When you’re looking at fixers, ask yourself:
• Are the needed repairs cosmetic or structural? Cosmetic fixes generally cost less, are easier to complete and provide instant eye appeal. If the home needs new wiring, plumbing and a roof, you’re talking big money.
• Are the repairs required worth it? A new roof or renovated kitchen may be worth the investment if you’re staying put, but may not pay off for a flip. It depends on the project and your market.
• Who’s going to do the work? Whether you do it yourself or hire others, you’ll pay for it — in time, money, and/or stress.
• How well do you handle disruption? From dust and debris to the daily parade of workers, some people would rather just pay more for a more finished home.
The thing about fixer-uppers is that you can’t be sure about everything that needs fixing-upping, especially problems behind walls. A good inspector can sniff out plumbing, electrical and foundation problems that will cost a lot to remedy and may not make this deal cost effective. Bringing wiring and plumbing up to code isn’t optional, and you should know exactly what problems you’re dealing with. Then, if you still decide to go ahead, you might have some price leverage, even if you’re buying the house “as is.” It never hurts to ask for a price reduction after the seller sees the list of problems.
To help estimate the cost of remodeling projects, you can use a remodeling calculator which produces an approximate cost for your area. Once you’re serious about a place, you can hire a contractor to provide an estimate for renovations.
Of course, lovingly nursing a home back to health is priceless — for some. But for most people, the math that makes a fixer a good investment is easy. Figure the cost to renovate the property (add another 10 percent for unforeseen problems and add-ons) and subtract that number from the home’s probable, post-renovation value gleaned from comparable sales and Zestimate forecast, which predicts a home’s Zestimate® one year from now. What’s left should guide your bid for the property.
Finding a fixer can be a flipper’s dream, but only if the home needs low-cost cosmetic upgrades you (or a reliable, affordable crew) can do. The trick is to get in and out before financing costs or a market change eat your profit.
Don’t buy a fixer with major foundation, electrical, plumbing or HVAC problems — all are expensive and time consuming to repair. Plus, once you start replacing wiring and pipes, you’ll be ripping open walls that will require patching and painting, which adds days to your project calendar.
Opt instead for properties where you can refinish hardwood floors; remove a non-load-bearing wall to open the space; update a kitchen with new cabinets, appliances and counters, and renovate bathrooms that don’t require moving the plumbing.
Outside, you can increase the home’s curb appeal by adding foundation plants, greening up the lawn and pruning plants.
If you plan to make the house your dream home, keep all receipts. Capital improvements, usually considered upgrades that increase the value of your home, become part of the new tax basis of your home and may provide some tax breaks on profits when you eventually sell.