The downturn in the economy has made many homes extremely affordable, giving many people the urge to snatch one up and move. The problem is that most of these cheaper homes are also in need of some repairs.
Some people think that if they are spending hundreds of thousands of dollars less on the purchase price of a home, they can easily afford to fix one up, but this isn’t always the most realistic assumption.
There are risks and gains to a fixer upper, and the following information can help you better decide if you can truly afford one.
Risk: You bite off more than you can chew.
Most people will hire an inspector to review the home before making a purchasing decision. This inspector can give them their opinion on what needs to be fixed in the home and how much it will cost. The problem is that these inspections are all generalized lists and prices.
Most inspectors only look at the problems they can see. They may notice a crack in the wall and tell you to fix it, but what they don’t know is that there’s a major crack in your foundation that is causing this crack in the wall. Fixing a damaged foundation is way more expensive than fixing a broken wall, and it’s possible that your home has more underlying problems than you initially realized or budgeted for.
It’s also possible that you thought all the fixes were cosmetic and that you planned on doing the work yourself. But if something more major appears, this will require the expertise of a professional, and this will be more costly than you expected.
Gain: You can negotiate price.
When a home is in desperate need of work, you can use it to your advantage to get it at an even more attractive price. Homes that have been on the market for longer periods of time or that need more work than others in the area tend to be those that you can get a good deal on. This can make it more attractive to you and ensure that you have the money needed for the repairs.
Risk: No return on investment.
Some people purchase a fixer upper so that they can have a solid return on investment when it comes time to selling the property. The problem is that these people are only looking at the purchase price compared to the selling price. What you also need to factor in is the amount of money you spent on renovations. If you purchased a home for $100,000 and put another $100,000 into it, and it’s only worth $150,000 when you’re all said and done, you ended up losing money on the house.
Gain: You can personalize it.
When you buy a fixer upper and you spend time remodeling the home, it allows you to customize it to your own tastes and preferences. You can choose the tile that you want for the bathroom as well the colors and design themes. You can make structural changes like removing walls to give your home an open floor plan. All of this can help you turn a house into a dream home.
Deciding whether or not to purchase a fixer upper is an important decision that needs to be well researched and planned. You need to understand that while it may be attractive to purchase a house for a lower price, there may be extra work involved that can break your budget. It’s important to have the monetary resources available to do the work you know the home needs as well as an extra 20% to account for any additional fixes that need to be made. After you weigh the risks and gains, you can make the best decision.
Marcy Smith works for Actin Productions a company with expertise in real estate video productions.