18 May Are You Considering a “Fixer Upper” House to Get Into the Real Estate Market?
When you start looking at houses to purchase, you see a range of home conditions. Some need varying degrees of work and others are “move-in ready”. Buying a house that needs work can be a smart financial decision. This approach can help people get into neighborhoods that might otherwise be out of their price range. In most markets, houses that need renovation will have a lower price than equivalent houses that are move-in ready. Buying a house that needs work can build equity. There can be many pitfalls and potential errors in judgment when buying a property you plan to renovate and resell. Here are four tipsto help you be realistic about this approach to a real estate purchase.
. Understand the condition of a house that needs work. There is a wide range of costs to fix up a house that needs work. That is why “buyers beware” is such a common saying in real estate. Know what needs to be done to a house to reach market value and know the cost to do the work. The devil is in the details, so understand every aspect of the work to be done. Replacing or upgrading systems such as electrical, plumbing, heating/cooling and roofing or updating kitchens and bathrooms can be very costly. In contrast, houses that have poor visual appeal may only need painting (inside or out), the addition of hardwood flooring or yard landscaping. When you think you have located the right house to purchase, develop a detailed list of work to be done. Having this information will be important as you negotiate the purchase price.
. Be realistic about any work you plan to do yourself. It is easy to think, “I can do that work, no problem”. It is important to think realistically about what you can and will do. Know what skills you have and do not have. Knowing how to paint is very different from working on plumbing or electrical, which require licensed technicians. Some people can handle simple kitchen or bath renovations. Be sure your expectations for the finished product meet what you can do. Also, know how much time you can commit to getting the work done. If you only have time at night and on weekends, be realistic in estimating how long a project will take to complete. Being realistic about your skills and time means you don’t underestimate your efforts and how long it will take to complete the work to your satisfaction. Remember, living in a house under construction can be stressful.
. Know how much it will cost you to renovate the house to your expectations. First, for the work you are going to do be sure to accurately determine the cost of materials. You may save on labor costs but not on the materials to get the job done. Get detailed estimates from specialty skills such as electrical, plumbing, roofing or any requirements for other skilled labor. These estimates will include labor and materials. With information about materials and contractor costs you can build a realistic budget. It is always best to add at least a 15% contingency to the overall cost. Remember, few home improvements come in under budget.
. You need to get your renovations costs back when you sell your house. Otherwise your original rationale for buying the property was wrong. It is important to know how long you plan to stay in the house. Is this a long term residence, perhaps more than five to seven ? Or do you anticipate moving in two to three years?Assuming there isn’t another deep recession, most real estate markets are experiencing increased value of housing over time. The longer you stay in a house the more value you are building. A real estate agent can provide valuable information about your local market that can help you determine what price to pay for the “fixer upper” and the improved value of the home you have bought and renovated.
Buying a home that needs updating or renovations can be a great financial strategy. It is important to be realistic about the work that needs to be done. Underestimating the cost and time to complete improvements can turn a good idea into a big mistake. Get good advice about the value of those improvements in your local real estate market.