Purchasing a home needing updates or renovations – known as a fixer-upper – can be tempting for handy buyers. Fixer-uppers are often priced below market value, allowing you to build equity through renovations. But take on too much, and you may end up overwhelmed, over-budget, and regretting your purchase.
Pros of Buying a Fixer-Upper
Lower Purchase Price
The obvious advantage of buying a fixer-upper is a lower purchase price. Properties needing significant work sell for less than updated homes. This discount lets you get into a better neighborhood or larger home for less upfront. Even after investing in renovations, you often come out ahead in equity.
Customization Potential
Fixer-uppers allow you to fully customize your home to your tastes through renovations down the road. Dream of a gourmet kitchen or spa bathroom? Buying a home needing updates allows you to transform spaces and make them your own over time.
Sense of Accomplishment
Some buyers also opt for a fixer out of a desire for project fulfillment. Making something your own through sweat equity provides great satisfaction. Bringing an outdated home back to life also enhances the neighborhood and community.
Cons of Buying a Fixer-Upper
Hidden Issues
The primary risk when purchasing a home needing updates is undiscovered problems behind walls, under flooring, or in systems. Inspections help flag issues, but they can’t catch everything hidden from view. Unexpected electrical rewiring, plumbing repairs, mold remediation and more mean you take on unknown risks buying a fixer.
Scope Creep
Even veteran renovators can fall victim to scope creep, where projects gradually snowball. Replacing the kitchen tiles leads to the discovery of subfloor damage. New cabinets means updating countertops too. Project costs quickly multiply, blowing budgets and timelines.
Contractor Dependence
While DIY projects are great, most fixer-uppers require skilled contractor help for major electrical, plumbing, and structural work. Vetting reputable contractors takes time. Builders’ busy schedules also mean extended timelines getting quotes, permits pulled, and work completed.
Financing Challenges
The experts at Mortgage Maestro say that lenders are often wary of approving a home mortgage for properties in need of extensive repairs due to appraisal challenges. Or they build repair estimates into purchase offers, reducing what you can offer on the home. Letters from contractors confirming quoted project costs help alleviate lender concerns over financing fixer-uppers.
Tips for Renovating a Fixer-Upper
Get Detailed Quotes
Never take on a fixer-upper without multiple itemized quotes from licensed contractors. Understand exactly what issues need addressing and have a clear budget for each project. Quotes give you the data needed to determine if the property will truly be a cost-effective investment in the long run.
Prioritize Projects
When creating your home improvement roadmap, separate cosmetic upgrades like flooring and paint from necessary functional repairs. Focus on fixing major issues like electrical, roofing, plumbing, HVAC first. Then move on to desired finishes and aesthetic touches.
Stick to Your Budget
Ultimately, a fixer-upper only pays off financially if repairs stay close to initial estimates. Scope creep, unexpected issues, and contractor overruns sink budgets quickly. Have contingency funds available but monitor spending closely against quotes.
Research Financing Options
Look beyond traditional mortgages when buying a fixer, since many need repairs before closing. FHA 203(k) loans allow financing of purchase price plus planned renovations through one home loan. Homestyle mortgages offer similar all-in-one financing for improvements. Or you can take out a separate Home Equity Line of Credit for renovations.
Conclusion
Buying and renovating a fixer-upper can reap tremendous rewards. But only if you enter the endeavor clear-eyed about the risks and commitments involved. Do your due diligence upfront and you can slowly create your dream home on a budget over time.
