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You think you may have found the perfect home. It’s got the room you need, it’s in just the right neighbourhood and it has all the charm you had hoped to find when you began your home search. but it does need work..
Buying a fixer-upper can usually go one of two ways; either you have a great time creating your own, rather unique little home and end up with something worth more than you originally paid for it or you end up with a cash and time sink that leaves you physically and mentally exhausted as well as broke. But how can you possibly foresee which way things will go?
While it’s not really possible to be absolutely sure that a fixer upper is the great idea – and bargain buy – you think it might be if you follow these steps you will know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.
Be Honest With Yourself About DIY
Home improvement shows on TV and the growing army of DIY guru YouTubers have given many of us a rather overinflated idea about just what a homeowner can realistically can and cannot do in terms of DIY renovation and remodeling. To watch them a kitchen remodel, a bathroom overhaul and even a rewiring job all look pretty straightforward and ‘do-able’.
In the real world however attempting a difficult remodeling job that you don’t know how to do will almost always take longer than you think and may lead to less-than-professional results that won’t increase the value of your fixer-upper house. And then there’s the time issue. OK, you have the skills, and the tools, to do a nice chunk of the required work yourself but do you really have the time?
Gauge Both the Cost and the Feasibility of Repairs Before Making an Offer
Before you even consider making an offer on a fixer upper have a contractor (a real one, not your Uncle who’s handy in the DIY department) walk through the property with you to help you determine the real costs you will be facing as well as just what can realistically be achieved. And don’t forget to tack on about 20% to the final figures you come up with to cover those inevitable extra expenses that pop up on every home improvement project.
Make Sure You’ll Have Enough Cash
You’re preapproved for the mortgage, you have the downpayment and the closing costs covered, but will you really also have enough money to make the repairs and improvements you are foreseeing? It’s all very well to assume you can ‘save’ to tackle certain work later on but when two years have gone by and the bathroom still has holes in the wall it’s really not so much fun (and the home’s value certainly hasn’t increased)
Calculate the Real Fair Market Value Before You Bid
Now it’s time to name your price. The best course of action is to take the fair market value of the property – what it would be worth if it were in good condition and remodeled to current tastes – and subtract the upgrade and repair costs.
For example: Your would be dream house has a 1970s kitchen, metallic wallpaper, shag carpeting, and high levels of radon in the basement.
Your comparison house, in the same neighborhood, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.
The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000. Sharing the cost estimates with the seller when you present your offer may be a good idea so that they understand the reasoning behind the numbers you have come up with.