Is It Worth Buying A Fixer Upper?
This pandemic fueled housing market over the last couple of years have led to rapidly increased prices on the few homes out there for buyers to choose from! Many of my buyers are now considering fixer upper homes! But this is not necessarily for everyone. One of my favorite shows on HGTV is Flip or Flop in which Tarek and Christina buy houses (he says the uglier the better) and flip them for a profit. I know that many buyers, especially first time home buyers, are not necessarily looking to buy a fixer upper home with the intention of flipping it for a profit. But when you watch the show, there are definitely lessons to take away from it - both good and bad!
So are there reasons to consider buying a fixer upper home? Definitely! But there are also cautions in buying a fixer upper!
The purchase price will most likely be lower than a home that has already been renovated and is move in ready! But keep in mind that you will be spending money on renovations in the home, so the final all in cost to you may be higher than if you bought one with everything already done!
There may be fewer buyers looking at the house - so you will find less competition for the home! But you may also have investors trying to purchase the house - and they will have the knowledge and workmen to help them with the renovation!
You can customize the home to what you want! When you purchase a resale home, the renovations & upgrades have already been done and if you don't like them, you may end up redoing them!
You control the quality of what is being put into the house! You are the one interviewing contractors and picking out the materials with the finishes you want!
It can turn out to be a great investment - with normal appreciation of 3% to 5% per year (the past couple years are really outliers), if you buy the house at the right price and know your budget for repairs/renovations/upgrades, it may turn out to be a great investment! But, on the flip side, there is no guarantee that you are going to break even or make a profit!
Renovations can be expensive - and there can be surprise costs that you didn't even think about! For instance, you decide to put granite counters in the kitchen - granite prices can be all over the place, depending on the grade! Or you may take a wall down only to find that there are plumbing problems! So make sure you know your budget and stick to it, and build in an amount to cover those unexpected repairs!
You may have to live elsewhere while the renovations/repairs are happening - or you may choose to live in a construction zone during the process! Just make sure you know where you will be living during renovation of your fixer upper home!
The renovation can be long and tiresome! Unfortunately, when you buy a fixer upper, it is definitely not going to be done in a 30 minute span like on television! But it can end up being longer than expensive if there are unexpected and surprise things happening! And if you aren't living at the house, but visiting it each day, it may seem like nothing is getting done fast!
So if you still want to buy a fixer upper home, there are things that you should do before you even start and once you get it under contract!
First, find a good Realtor to help you. Even with the market we are still in in 2022, fixer upper homes are going under contract quickly, so you want to make sure you can get out there and look at them. And that Realtor will also know what is happening in the market to let you know what you may need to do to the house compared to the more move in ready homes!
Second, get your financing in order! You will need to know exactly what type of loan you qualify for. In the Richmond area there are only a few lenders who specialize in offering renovation loans, and not all these lenders offer all the renovation loans. Qualification will vary depending on the lender and the type of loan, so you really need to talk to a lender and find out what your options are before you start looking at homes. Loans available can be FHA 203K loans (which can allow the buyer to have a lower income & credit score), a VA Renovation loan for veterans (but may require a VA approved contractor to do the repairs & may be limited in the projects that may be covered by the loan), the Fannie Mae Homestyle Loan (which will require a higher credit score, but may include most projects including some luxury items) and the Freddie Mac Choice Renovation Loan (which may allow the homeowner to make some repairs themselves).
Third, check with the city or county to see what they will require permits for! This may add some extra costs to your renovation but it is very important that these be properly done and permitted!
Fourth, determine what things you are capable of doing yourself - then find out from the lender if the loan you will be getting will allow you to do those things! You may be limited as to what you can actually do yourself, even if you consider yourself to be a very handy person!
Fifth, line up a contractor! Depending on the renovations and work that is needed in the house, you need to make sure you have a good contractor to do the work. You should meet with them, check out their license on the DPOR website, check out the contractor on the Better Business Bureau and ask for references, then talk to the people who have worked with them in the past. Your Realtor may also be able to provide some contractors that they recommend, and even the lender may be able to provide recommended contractors.
Sixth, make a smart offer! You should be able to know what your limit will be on the renovation costs and what the after renovation market value of the home will be. Leave some room for unexpected costs! Your Realtor should be able to guide you on coming up with a smart offer on the house!
Seventh, get to know the neighbors! Once your offer has been accepted, get to know your new neighbors. There will be lots of noise and work trucks and big dumpsters at the house and you certainly don't want to annoy any of your new neighbors because of the work happening at the house!
Eighth, stick to your budget! You made a budget and you have your loan! Sometimes it is easy to get carried away with all the finishes you find in the stores. But you don't want to spend so much money on the renovation that in the end, you have put in more money than what it is worth in the market! Even if you plan to live in the house for a number of years to come, you don't want to be the highest priced home in the neighborhood!
Fixer upper homes are not for everyone, but if you are thinking that this is something you want to consider, feel free to let me know how I can help! I have worked with a number of buyers over the years who have purchased fixer upper homes and would be happy to answer any questions you may have!