If you know what to look for and are patient enough to weed through quite a few prospects before making the big move, the purchase of a fixer-upper can potentially lead to nothing less than a financial windfall. A few months of sweat equity and a few thousand dollars-worth of materials can easily change the appraised value of a house by 10 to 20 percent or more. For a $350,000 home, that would work out to $35,000 to $70,000! Who wouldn’t look twice at that kind of opportunity?
There is a potential downside, of course. You don’t have to ask around much before hearing someone’s story of loss and regret when he or she went down the fixer-upper trail.
It’s important to be careful when considering the purchase of a fixer-upper. Here are four reasons why it may not be the smartest option:
1. It’s Not a Winning Proposition
One of the most important factors in the overall success of your fixer-upper purchase is where you eventually land in terms of cost vs. value. When it’s all said and done, and all of your investment and hard work is figured in, do you have equity? Is the house worth more or less than what you’ve invested? If it’s worth more, counting your time and effort, then you’ve made a good move. If less, then there had better be some intangibles such as, “We never could have gotten into this neighborhood any other way!” Even with intangibles, be careful: Whenever you end up in a negative-equity situation, things like job security and overall financial health become much more important.
The best way to ensure success is to know the neighborhood in which you’re buying like the back of your hand, or seek the assistance of someone who does. Whether it’s you yourself, your real estate agent, an appraiser or someone else, someone on your home buying team has to know what the prospective purchase would sell for IF the work you’re thinking about doing was done well and good to go.
Guessing or just being “hopeful” just won’t cut it. Knowing what the “improved value” of the fixer-upper will be is a very important part of your decision-making process.
If you really want to purchase a house with structural issues, be prepared for much more difficult financing and plan to hire a licensed contractor.
2. You Aren’t the Handiest Person on the Planet
If your plan to do the home repairs and improvements yourself, then it pays to know your skillset. Shows on HGTV and videos on YouTube can make things like drywall finishing or cabinetmaking look easy, and it’s amazing how much you can learn with a quick Google search these days. But don’t expect these skills to just come naturally, if you’ve never done this type of work. If you have to learn a new skill, are you patient enough to do it over a few times, if that’s what it takes to get it right?
The finish quality of a home is the first thing an appraiser or potential buyer will see and have a significant impact on the value of your investment. The quality of drywall work, trim carpentry, doors and windows and painting (projects that are part of pretty much every single fixer-upper project) is pretty evident at a glance. It’s important that the work you decide to do is done right.
3. You’ve Got, Like, Zero Time to Dedicate to This
The other place for a self-reality check is time. Do you have enough of it to actually do the work?
A couple small kids or a demanding career can take a major bite out of your available time, and even the hardest worker eventually ceases to function well without at least a little R&R. If you plan to use your only eight hours a week of relaxation as “home improvement” time, you might be stretching yourself a little thin. If that’s your plan, you’ll want to make “this is going to take awhile” part of your home improvement mentality.
If you feel tired or frustrated all the time, your home renovation will become a miserable experience, and nobody wants that, right?
4. The Bones of the Home are B-R-O-K-E-N
So far, I’ve been talking about a DIY kind of fixer-upper, the kind where you as the buyer aren’t a remodeling pro and you are planning to do the work yourself rather than hire a contractor.
If that’s you, then you should just stay away from structural issues.
- Sagging beams
- Concrete with really big cracks in it. (Closed hairline cracks in concrete are common, but open cracks are not good.)
- Doors or windows that won’t close because of settlement
- Fire damage
- Structural water damage, such as major rotten wood issues
- Structural termite damage
- Etc., etc., etc.
Note that “structural” means the bones of the house. The load-bearing walls, the foundation and floor framing, the roof framing and support beams, etc. If you’ve got a little bit of water-damaged exterior trim to replace, no problemo.
The best way to know for sure what’s what: Hire a professional home inspector you can trust to go over the entire property with a fine-tooth comb. Don’t skimp on this!
If you really want to purchase a house with structural issues, be prepared for much more difficult financing and plan to hire a licensed contractor. Those guys are awesome anyway, IMHO!
5. Procrastination is Your Middle Name
Finally, once the purchase is done and the keys are in your hand, it’s nose to the grindstone. Don’t ask me the origins of this old saying, because I don’t really know … I just know it means “work hard” and that’s what you’ll want to do!
The more diligence you put into the fixer-upper you purchased, the faster it will start to feel like the house down the block that was $100,000 more, and the better you’ll feel about the whole thing.
Start right away with the projects that will make the biggest difference quickly. Painting rooms that need nothing more than paint is a great place to start. After that, replacing any exterior trimwork or details and painting the outside, along with a little bit of landscaping, will put a big smile on your face every time you walk up to the front door.
If you don’t feel like you can stay focused, stick to your plan and steadily work at it, a fixer-upper most likely won’t be your dream home. And that’s completely okay.