If you are like me, I love watching the fixer upper shows on HGTV! I love Joanna and Chip Gaines, and love watching what they do - making the house go from ugly to one that I would want to live in! And when I go out with my buyers and we see a house that has been just renovated, we can always tell when someone is taking the ideas from Joanna and Chip! They have that look!
So it is definitely not surprising when I work with a lot of buyers that they also want to buy a fixer upper and renovate it to give it their own style!
But the big question I always end up asking - "Is buying a fixer upper really worth it?" It is definitely not like television! Why? First of all, the cost will probably be a lot higher in reality than it is on television (remember, it is a television show where someone is getting paid).
So, how do you know whether or not a fixer upper is right for you?
Decide What the Real Price of the Fixer Upper Should Be!
Fixer upper homes are normally discounted in the market because it needs to have work done. The work can be as minor as a little bit of cosmetic TLC, or it can be a significant renovation involving structural repairs and major things like kitchens and baths!
How do you determine what the true market value is of the fixer upper you are considering?
* First, find a comparable home in your target area that doesn't need to be updated or renovated! Your Realtor's market analysis should be able to tell you just what that should be! If possible, go view some of these homes that are on the market right now to get an idea of just how upgraded your fixer upper should probably be once you are done!
* Next, figure up the costs of the renovation you will be doing! Make sure you include both labor & material! Know what you are able to do yourself and what you will need to have a licensed contractor do! If you will have to do a lot of major renovations, make sure you get 2 bids on the work from licensed, Class A contractors who are reputable with good references! Deduct this from your after renovation value!
* Next, deduct another 5% to 10% for any unforeseen expenses! And these will come up during the renovation!
This should then give you what your offer should be for the fixer upper you are considering!
Decide on How You Will Finance!
A lot depends on just how much work is needed on the house and how much you will be able to do yourself, and if you need to hire out any of the work! If you are buying your first home, and the renovation involves more than just pulling down wallpaper, repainting & putting in new carpet & appliances, you may or may not be able to get a conventional or FHA loan - if you don't have the cash, you may have to go with a renovation loan! But there are costs involved with a renovation loan - and most of these loans will only allow you to finance 110% of the after improvement value!
If the renovations needed are minor, such as repainting, new carpet, new appliances, etc. you may be able to put those things on a credit card! But keep in mind that the interest rate on a credit card is high and putting too much on a credit card may impact your credit score!
Another option for some people is doing a home equity line of credit! But remember, you need to have equity in your house, as most sellers will only let you pull out whatever equity you have so that your total debt on the house does not exceed around 80% to 90% of the home's value!
And if you are thinking of purchasing a home in the City of Richmond, you may be able to utilize the City of Richmond's tax abatement program.
Make Sure You Have An Inspection Done!
No matter how much work is needed in the house, never give up your right to inspect the property. Unless you are a contractor or a home inspector, there may be things you won't see just by walking through a property. A good home inspector will be able to go under the house, on the roof, look at the chimney, test the electric, look at the plumbing, look at the heating & cooling, windows, and so on! Even if the house you are buying is a foreclosure or being sold as is, a good inspection will let you know additional items that may need to be taken care of after closing! This may end up adding in a lot more to your renovation budget and may even end up making your purchase price too high!
Know Why You Want To Buy A Fixer Upper!
There are lots of reasons why someone wants to buy a fixer upper. Perhaps you are buying your first home and want to have a home that has exactly what you want because what is on the market right now isn't quite right for you! Perhaps you have been watching the HGTV shows and want to be able to flip a property for a profit! Perhaps you are looking to begin building a rental portfolio!
Whatever your reasons are for buying a fixer upper, make sure you know what you are getting into! Make sure you have a clear idea of why you are buying a fixer upper, what you want your fixer upper to look like after your have fixed it up, what your cost of the renovation & financing the cost of that renovation will be, how much you are willing to do vs. how much you will need to have a contractor do! Finally, make sure you have the time and the drive to handle a renovation - rehabbing can be stressful and you need to know what you can live with and how long you can live with the renovation process!
Thinking of buying a house? Thinking of selling your home? Have a question? Need a referral to good contractors or inspectors? Feel free to call me - I am happy to help!