Purchasing fixer-upper homes has become a popular strategy in the real estate investing game. Homes that are in need of major cosmetic updates and maintenance are purchased below market value then rehabilitated to meet current market standards. These types of properties present a unique opportunity, whether you’re looking to purchase your first home or you’re a skilled real estate investor, these seven tips will help lead you down the path of success when buying a fixer-upper.
A FIXER-UPPER IS A GREAT OPTION, IF YOU Know WHAT TO CONSIDER BEFOREHAND
1. Structural Work and Renovations
In this day and age, people like things done fast and cheap. Don’t make the mistake of aiming too low when it comes down to picking the right contractor. Set your expectations high and know that skilled and seasoned contractors are in great demand in this current market. Good contractors are usually booked out months in advance, so don’t sweat it if your first couple of calls go to voicemail. This is actually a good sign, it means that the contractor has a busy list of clientele. Stray away from readily available contractors, eagerness is great in some circumstances, but an open schedule should indicate that clients are staying away for a reason.
Remember, if you want high-quality work done, it’s going to take time and patience. In terms of price, aim to get as many quotes as possible. You don’t have to go with the highest quote given, but try to find a middle of the road price that reflects an ideal skill-level for the renovations that you need. What I’m trying to say is, you get what you pay for!
2. Location and Neighborhood Standards
As much as you may want your future fixer-upper to undergo a complete makeover and transformation, not all homes have this potential. The location is the deciding factor in this situation. If the home is situated in an undesirable neighboorhood, or on the edge of a major freeway, then the future of the home is already looking grim. As I have said many times when talking about real estate, location matters!
The best way to find a prime location that fits your personal needs is to contact a professional real estate agent and start asking questions. Figure out what kind of amenities are around your potential fixer-upper and take note of the condition of the neighborhood and the surrounding homes. You can always change the home, but the same can’t be said for the location!
3. If You Plan to Flip
If you’re planning to flip the house or in other words, fix and sell, you need to make sure that you are adhering to the masses, not your own personal taste. The house should be designed in a way that is appealing to buyers, this might mean adding modern kitchen finishes, spending a little extra money on landscaping and adding a master suite. These little touches can go a long way when it comes down to the home’s resale potential.
4. Permitting Costs
Permit costs can range anywhere between a few hundred dollars to a few thousand dollars, so it’s important that you have a prior understanding of what home improvement projects may require a building permit from your city or county.
Building permits are written authorizations issued by local government agencies that allow you to complete a construction project on your property. This approval shields you from the possibility of breaking building, construction, or zoning codes. The good news is, not all construction projects require a permit. Even so, it’s always better to check with your local government about project permits. This way, you avoid a preventable mistake and most importantly, avoid having to pay triple in permitting fees! It’s not worth the stress, or the financial risk!
5. DIY or Hire a Pro
For home improvement projects, you should spend some time considering whether or not you want to do it yourself or hire a professional. Depending on your skill set, you may be able to save money on labor and complete the job with your own two hands.
If you’re someone who is willing to watch tutorial videos and get your hands dirty, then I suggest trying to do it yourself. This is a very rewarding method, but it takes time, patience, and flexibility. If you’re a perfectionist who doesn’t have the time or skills available, then take the route of hiring a professional.
6. The Cost of Financing
In order to afford the downpayment, closing costs, and all of the repairs, you need to have your finances in order. This means that you have to have an accurate timetable that allows you to make accurate cost estimates.
Consider the timeline of how long all the repairs will take and factor in all of the costs, including tools, labor, insurance, and taxes. If you’re feeling stuck in terms of acquiring finances, the Federal Housing Administration’s Section 203(k) Program is designed to help homebuyers and homeowners finance their home improvements. However, if I can give you one piece of advice, always be prepared to go over your budget!
7. Consider Your Fair Purchase Offer
If you’re planning to sell your fixer-upper, you’re going to need to calculate the fair purchase offer. To do this, you take the fair market value and subtract the total renovation costs. If you’re thinking about buying a fixer-upper, start by getting in the right mindset. Learn to expect the unexpected and embrace your mistakes along the way. Each property and home are different, so be realistic in terms of what you want the outcome to be. If you decide to take the leap, I hope you consider my seven tips!
Our final Real Estate Workshop of the year has sold out, and I am so excited to see everyone there! If you didn’t get a ticket but you still want to learn about investing in real estate, we are having another Real Estate Workshop in April of 2020. I hope you will join us!