Buying a fixer-upper can be a good way to get a home at an affordable price if you don't have a lot of money. As cleverly illustrated in the movie The Money Pit starring Tom Hanks, purchasing a home that needs some TLC can quickly end up costing more money and time than you were expecting. Here are three tips for picking out the right renovation project that won't end up destroying your bank account or your sanity.
Look for Little Issues That May Become Big Problems
It's fairly common sense you should avoid homes with major issues you may not have the money to fix. For instance, you probably shouldn't buy a house with foundation issues if you don't have the up to $30,000 needed to correct the problem. However, even seemingly minor issues can become major problems later on if you don't have the money or expertise needed to tackle them within a reasonable amount of time after purchasing the home.
For example, it's not unusual for a fixer-upper home to need rewiring, especially if the home is older. While it may seem to be a relatively minor issue to have the circuit breaker trip each time you use your hair dryer, bad wiring can become a fire hazard. The last thing you want happening is to have your entire investment go up in smoke because the old electrical system in the home couldn't keep up with your modern appliances.
That's why it's important to have the home thoroughly inspected by contractors and professionals who can tell you what needs to be done right away and what can wait. If the professional mentions a somewhat minor issue that should be fixed quickly, but you don't have the money to do it, you may want to pass on the home.
Repairs Should Increase the Home's Market Value
Another important thing to look at is whether the repairs you make will increase the home's market value. You'll be putting a lot of time, effort, and money into renovating the house. It only makes financial sense you should be able to recoup some or all of the value of those repairs and remodeling when it comes time to sell the home.
As strange as it may sound, cosmetic items—such as lighting fixtures, siding, and windows—can increase the home's value quite a bit. For example, spending $9,000 on replacing the siding may increase the home's market value by $8,000. Remodeling the bathroom may add another $11,000 to amount you can ask for.
On the other hand, structural repairs tend not to have as much value. That's because, these are typically things that must be in place to ensure the home is safe enough to live in. For instance, replacing or repairing a damaged crawlspace to prevent flooding may be seen as the minimum you can do to make the home habitable. Thus, you may not recoup as much of your investment via a boost in the home's market value as you would by replacing the roof.
Maximize Your Discounts
People selling homes that need to be fixed up are already typically prepared to accept a low offers for them. Therefore, you should maximize the discount you receive for taking the building off their hands. For instance, you could offer to take the home as is if the seller is willing to reduce the price an additional 10 percent. Be sure to have the home thoroughly inspected, so you know what you're getting into.
Alternatively, you can negotiate some repairs with the seller. For instance, if the water heater needs to be replaced, you could make the sale contingent upon the seller purchasing a new one or at least contributing towards the cost (via a discount on the home's sale price).
There are a lot of different things you need to consider when purchasing a fixer-upper home. For more tips on this issue or help selecting a house, contact a realtor.Share