Buying a home under market value sounds good to any would-be homeowner. Fixer-uppers often fit the bill for this desire. A good neighborhood and a decent home that just need a little refurbishing sounds like a dream come true. But before you sign on the dotted line here are a few things to consider to avoid having your dream home turn into a money pit.
Add Twice, Purchase Once
If you’ve found a house with “good bones” but in need of a facelift your very first action should be to do your math homework. Make a detailed list of the work that needs to be done on the home. Add up the cost of supplies, labor, and tack on 10% for incidental items that always come up when remodeling a home. Get a home inspection done so you know exactly what needs to be done to a home and price repairs and remodeling appropriately.
Once your remodeling cost is figured up, deduct it from the asking price of the home and make that your offer for the house. If the current homeowner accepts your bid, then this might be the home for you. But be careful, if the inspection brings back recommendations for major electrical or plumbing overhauls you should probably avoid it. Those kinds of expenses don’t add value to a home, they are simply expected and you might not be able to recoup the cost when you sell the home.
Choose a Paying Project
The very best fixer-uppers are those which require mostly cosmetic repairs. New paint, a new door or windows, new shingles on the roof or carpeting. Those are repairs that fall into the “affordable” category.
If you find a home that looks promising, but it’s just a little too small and you’re thinking of taking on adding a room, you might want to reconsider. Major construction remodeling seldom pays off. But if you do decide to go this route, be sure that the additions and improvements you are making don’t raise the overall value of the home more than 10-15% above the median value of homes in your area. If the cost of your project drives the price tag of the home up, you might not be able to resell it.
Consider Sweat Equity
The amount of income potential on a fixer-upper is increased by a homeowner’s willingness to do much of the work for himself or herself. If you are able to paint, hang cabinets, put in tile, or build your own deck, that time spent on weekend warrior projects could net you a tidy profit if you decide to resell the home down the road. If you aren’t particularly handy, be prepared to pay out a good portion of your profit to contractors.
From Disaster to Dream Home
The most important thing to realize when getting yourself into a fixer-upper is that things will probably crop up that you didn’t first expect. Older homes often have unseen issues that come to light once renovation begins. If you are flexible, careful with your budget, and able to do a lot of work yourself, then a fixer-upper could be your key to the perfect dream home.