Considering a Fixer-Upper? Tips to Make Sure it Won't be a Downer

Buying a home that qualifies as a “fixer-upper” is one great reason to make sure your personality and your home preferences are in sync. Undoubtedly, taking an out-of-date, out-of-style and, seemingly hopeless piece of property and making it into your dream home can be one of the most rewarding experiences you can undertake. On the flip-side, it can also be one of the most stressful, straining and expensive choices you can make.

So, where do you stand? Are you ready to dig in, get your hands dirty and create a palace out of an otherwise humble abode? Before you decide if buying a fixer-upper is right for you, here are a few things to consider:

• Purchasing a fixer-upper in a good neighborhood, where other home values are high, may be a great investment. Yes, it may need some work; but, because of that, you should be able to buy the home well below market price, which means that after you put in the work, you should be able to reap the financial rewards as your home value soars.

If you purchase a fixer-upper in a neighborhood where several of the home values are low, beware of the amount of work that you may put into the home. If homes prices in the area are low and you intend on flipping the home, you may price yourself out of the market by adding expensive upgrades.

• When you’re buying any home, the home inspection is important; but, when you’re buying a fixer-upper, it is paramount. It may be wise to include an inspection clause in your contract. If your home inspector finds that structural improvements are necessary, i.e. plumbing, electrical, foundation, roof or wall upgrades, you may want to consider backing out of the purchase or, at least, negotiating those repairs with the seller.

Cosmetic improvements, like adding a bathroom, updating the kitchen, refinishing the floors, painting or hanging drywall are easy fixes that can add immediate value to your new home. It can’t hurt to walk through the home inspection with your inspector. You can get a sense for what issues are easily addressed and which ones may be better left alone.

• Even if you’ve always wanted to buy a fixer-upper, you need to make sure the time is right for you. Here are a few questions to consider:

How much can you afford to put into the home, after paying a down payment and closing costs? Coming up with additional money for renovations can be difficult. Are you willing to rely on credit cards, your 401K or a renovation loan, either through home equity or through your mortgage?

How much will renovating the home cost? Consider materials, labor and time (including your own!). There may be some upgrades you can do for yourself, but you may need to hire professionals or buy the right tools for some jobs. Don’t forget to account for any extras you may decide to add or any unforeseen problems you may run into while renovating.

Are you willing to live in the home while you renovate it or will you need to plan on an alternative living arrangement during the home improvement process? Living with family or friends may be an option, but is not always ideal. Did you set aside money to rent a place while you upgrade your new home? Is your fixer-upper a second property that you are planning to flip?

• Finally, when you’re deciding whether or not you should buy a fixer-upper, take the real estate market into consideration. Renovations can be costly, so what will the home’s value be when you’re done? Think about how long it may take to renovate the home and consider where the market may be when renovations are complete. Will the market be able to support your upgrades?

As with any venture, buying a home that is a “fixer-upper” can be risky. But, if you properly inspect the home, consider the costs and time involved and evaluate the real estate market, it may be one of the most gratifying and financially-rewarding decisions you can make.