1. Is the home’s location worth it?
Most buyers choose fixer-upper homes because they loved the area first and saw the potential of a thriving neighborhood. Unlike other home buyers, they can see past the external imperfections of the house, such as peeling paint or an unkempt yard, and realize that it is in an area with sustainable growth. So to choose wisely, do your research and love the neighborhood first. Is it close to public transit for easy commutes? Are there any parks and local attractions nearby? Is it in a good school district? If you answer “yes” to one or more of these questions, it might be worth it to get your hands dirty for that bargain.
If you find problems like these after a home inspection, experts say it’s probably best to walk away. These flaws can actually make the house dangerous to live in. They are very expensive to fix and they have to be taken care of by a licensed contractor. Likewise, environmental problems such as termite damage or radon can be mitigated, but treatments may not always be successful.
On the contrary, they say the perfect fixer-uppers are the ones that only need cosmetic upgrades. Many home buyers would scoff at these houses and simply walk away. They don’t know that problems like cracked tiles, peeling paint, smelly odors, and unkempt lawns are only skin-deep and just make the house aesthetically and architecturally unappealing.
Cosmetic changes are generally less costly and can even add value to the home, especially for projects like kitchen and bathroom renovation, wallpaper removal, floor refinishing, and new lighting installation. Experts refer to fixer-uppers like these as “ugly homes”—they only need some freshening up before they’re transformed into a home that anyone would want. The best advantage to purchasing this type of fixer-upper: you can choose your preferred colors, furnishings, and fixtures to make the home perfectly suited to your own taste.
If it’s located in a neighborhood where most of the homes only have two bedrooms, having an extra bedroom can give your home a huge advantage. A kitchen with more than one entrance is more likable, while the concept of an open floor plan is gaining popularity, especially among many millennial buyers. Those features can help make the home appealing to a large pool of potential buyers and thus can be more profitable when it’s time for you to sell.
For cosmetic upgrades and repairs you are planning to DIY, determine the materials you’ll need and how much they cost. You can get a rough estimate by checking home improvements stores and websites, such as Home Depot or Lowe’s.
You also need to factor in the cost of securing permits from your town or local municipality. Permits come with corresponding fees and can be pricey depending on the town. On the other hand, moving forward with your home renovations without securing the proper permits can have many negative consequences. Check first with local officials and see which of the repair jobs require a permit, and how much they cost.
A fixer-upper works best for those who would happily spend their time replacing cabinets and refinishing floors, and would want to get their hands dirty to make their home more habitable and profitable. Experts also call this concept “sweat equity.” By doing some part of the work yourself, you’re improving your home’s value and even adding greater value to your home. Likewise, the more you can do on your own (just as long as it’s still safe enough for an amateur), the less you need to spend on labor cost and instead allocate a part of your budget in buying high-quality materials.
For example, a 203(k) loan is backed by the Federal Housing Administration, which means you can put as little as a 3.5% down. Lenders can also accept lower interest rates than what a typical home renovation loan would require. Moreover, it is also open to borrowers who have a less-than-stellar credit rating and can cover big-ticket issues such as structural damage and plumbing replacement.
Before getting a renovation loan, make sure you’ve explored all your options and understand the pros and cons of each program. Also, keep in mind that you generally need to be pre-approved with these loans before you can make an offer on a house.
