Buying a Fixer-Upper

Everybody wants to buy a home, and everybody understands what importance that particular investment means. To buy a fixer-upper presents a set of challenges this blog addresses.

Most homeowners never deal with the problems a fixer-upper presents, and this blog articulates significant problems and solutions.

Let’s look at the pros and cons of the fixer-upper:

What’s Great About Buying a Fixer-Upper 

The upside of buying a fixer-upper is numerous. 

1. You won’t pay as much for your home. Price range sometimes has as much to do with the amount of sweat-equity fixing it up will take.
2. Depending on how many years you go for the mortgage application, your monthly payment could be meager.
3. You can create the home you want. You’ll probably gut some fixer-uppers, while others just require a coat of paint. In the end, everything from the layout to the fixtures may have your name on it. 

If you are looking to flip the home, you could make some pretty good money. Like many investments, the secret is to buy low and sell high. If you get the right fixer-upper, you could make enough flipping it to actually pay cash for your next home. Some talented DIY people do it more than once. So, the potential for a quasi-career is another pro for buying a fixer-upper.

Okay, you’ve probably guessed that buying a fixer-upper offers numerous advantages. Still, you must juggle many of the steps involved. Even then, much success rests on your answering the If-Then proposals. Let’s look a the cons you may confront, so you can bail on this business earlier rather than later. 

Cons of Buying a Fixer-Upper  

Not everything that glitters is gold. First-timers will need a ton of advice along the way. The process is chockfull of pitfalls. Let’s look at some cons: 

1. The house may be too expensive to fix up. 
2. It’s difficult to finance. 
3. How far from the ideal fixer-upper is it?
4. Can it even be fixed up? 
5. Toxicity
6. The ancient plumbing, electrical system, and other fixtures like sash windows can be problematic. 
7. If you’re a DIY, Do You Have the Skills?
8. Getting the price right.

Too Expensive to Fix-Up

So, you’ve found a fantastic Queen Anne home from the 19th century, and you want to do a sensitive restoration! Fantastic! Except that a sensitive restoration might seriously drive the cost of fixing up the home through the roof. It may cost you millions or tens of millions to renovate some large 19th-century dwellings. Do you want to fix it up to run a Bed & Breakfast? It might make sense to do it then, but otherwise, it may not.

Would you be further ahead working at Mcdonald’s for all the hours you spend on the project (sweat equity)?

Financing the Mortgage and the Construction Funds

Can you combine the mortgage cost and the fix-it-up cost into a single mortgage? Okay, so this is just a cautionary thing. It reconciles how much money you really need to make the project work.

Far from Ideal

Ideally, the best project is a home that needs cleaning and light repair, like maybe it needs a coat of paint. And that’s it! That makes it fantastic if you can find it at a bargain. If that’s the ideal, how far from this ideal situation is the house you’re considering?

Just How Old is This Old House?

Suppose you have an old gravity-center furnace in the basement. You will have to replace it if you want to do any significant remodeling that involves moving HVAC, like adding an addition. Just how flexible is this old house you want to renovate? Some are cast in stone inadvertently. Old houses are full of harmful, toxic substances like lead paint and asbestos.

An old footprint of the house doesn’t always fit today’s family, which might mean gutting the place and starting with a new floor plan. Boy, that’s a significant expense.

The knob-and-tube wiring, the galvanized steel plumbing, and the sash windows also present challenges.

The Challenge of Toxic Substances

You could, of course, remove the asbestos, lead paint, and toxic flooring. Still, it may involve bringing in technical people dressed in moon suits who will mark you up 100% over the typical cost of a repair or replacement. 

Do You Have the Skills?

If you’re a DIY, do you understand the building trades? It’s an important question when building inspectors make conflicting demands like cutting those supporting girders to put in the plumbing, patching up those holes in the rafters, or facing condemnation!

Can You Accurately Calculate the Value?

What happened to all the savings you anticipated? You found the ideal home in the perfect neighborhood! Amazing! Unfortunately, the owner wants a lot because it’s in an excellent location. Ensure the amount of money you pay, and the amount you invest in represents the actual value.

Consider taking a correspondence course in carpentry to facilitate at least one of the hidden costs of tackling a fixer-upper. It will only set you back $800 and make you much more knowledgeable about the job you want to do. 

Is it a Home or an Investment?

If it is an investment, government agencies may think twice about ever selling you the place, and banks may take a different view of you. The home status also affects your eligibility for many home repair loans you can get from government programs. So figure that question out. 

Hiring Professionals

If you intended to hire professionals to do the work, who should you hire?

1. Home Inspector. The best investment might be your own home inspector. Home inspectors who work for you are thorough. You’ll get a lengthy, detailed list of all the problems in the structure. You may discover that the house you’re interested in is too much work. 
2. A contractor. A contractor can take care of the carpentry, the plumbing, the HVAC, and the electrical tasks. Make sure they’re bonded and insured so that you have guarantees of quality work. Contractors pull the permits, cross every “t” and dot every “i” to meet the requirements of local inspectors. 
3. A realtor. An experienced realtor has seen many home inspections, and they’re knowledgeable. In addition, realtors know other stuff that goes beyond the house’s structure. A realtor will look at you as a person, couple, or family and give you good advice about a neighborhood. While a good realtor might understand everything it will take to bring your fixer-upper to live, they’ll also suggest better alternatives than a fixer-upper. There’s no harm in listening.  

So is it Worth it?

The city inspectors may demand improvements, while the house is an eye-sore to the neighbors. Is it worth the trouble? 

The more experience you have with fixing homes up, the more you’ll see what an outstanding value a fixer-upper can be, one that you’ll indeed complete. Besides, if you bought the house to live in, you’ve found your home and that’s different from an investment. A home buy increases your flexibility.

How Much Should I Pay for a Fixer-Upper?

Some low-ball offers start at ten percent of the finished home’s value, which works as a place to start. Depending on how much work is involved, you could offer 20 percent to 40 percent of the fixer-upper’s potential value. Ten percent, to be fair, is a very cheap purchase price. If you could get a bank to finance a loan for only 10 percent for thirty years, you’d enjoy monthly payments that look like rent control numbers. 

Can I Get a Loan for a Fixer-Upper?

You can get government-guaranteed loans for fixer-uppers like the FHA 203K loan. Many money lenders will want to include the repair cost in the total loan. 

This blog was originally published in 2021, and has been slightly edited.

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