If you are one of those people that can look past what is to see what could be, you may be drawn to a fixer-upper. With a little bit of rehabbing, you can turn it into a great home and tailor it to your specific vision. You get it for a rock-bottom price, give it a little TLC, and boom, you have boosted its worth way beyond what you paid for it. Sounds pretty simple, but it may not always work out this way.
Jumping right into this type of real estate purchase without doing some through evaluations, both on the house and yourself, may leave you in a nightmare situation where you are hemorrhaging money. Here are some important things to think about before buying a home that needs a lot of work. Knowing Where to Draw the Line the issues with a fixer-upper can range from merely cosmetic to serious issues, like a shoddy foundation or pervasive mold.
When evaluating fixer-uppers, you have to know where you should draw the line. Think about your budget, what you can handle on your own, what you would need done by contractors and how much of headache you are able to personally tolerate.
It is really about the individual. What one person may see as a major undertaking, another may see as a piece of cake? You may be so in love with a home and its location, you will do anything to be able to live there. Or you may feel lukewarm about it, and the investment may not be worth it. If after evaluating a home, you simply do not feel up to the challenge, listen to your gut and walk away.
It is also important to remember that many types of repairs will not necessarily raise the value of a home if you sell it. People expect the plumbing and electricity to work, a solid roof and a foundation free of cracks. If your main focus is finding a home to call your own for the rest of your days, then this is not as big an issue. But, if you have an eye towards making money off this home someday, you may not get enough for the house to offset these costs.
Are You Willing to Do the Work? Fixer-uppers are best for people who are willing to get their hands dirty and do most of the work themselves. The whole purpose of buying this type of home is to save money and get much more than you paid for it should you sell it down the line. The less you can do on your own, the less of a ‘’bargain’’ the home becomes. This is not to say that you should only buy a fixer-upper if you are a home improvement guru, but if you will be relying on professionals to address every aspect of the renovation, this great deal may become less so.
What to Offers, you have decided a home is worth the effort and you are ready to move forward. You now have to think about an offer. The good thing about these types of houses is that prices are not contingent on the state of the market as much as newer homes, and there is probably less competition. There is no exact science, but the following can give you a guideline for formulating your bid.
First, you need to figure out the renovation costs. This requires a thorough assessment of the home—if you are not well-versed in this area, bring along someone who is to get the most accurate numbers possible.
This number will be subtracted from the likely value of the home after it has been rehabbed. You will find this number by looking at real estate prices in the neighborhood for similar types of houses. Last, but certainly not least, deduct another five to 10 percent to cover any extras you may add on, inflation and the inevitable unforeseen expenses and snafus that will arise.
Kelli Cooper is a freelance writer who enjoys blogging about all things real estate; she recommends learning more at Kane tix about Canadian mortgages.