With the downturn of the real estate market, many doors have opened for homebuyers. Whether you are a first-time homebuyer, or a seasoned investor, the opportunities for finding good deals are abundant. Often times, a home’s potential lies in its ability to be fixed up. It is harder to get top-dollar for a home that needs renovating, and your bargaining power is heightened because of this. Following is a comparison of the pros and cons to buying a fixer upper.
- The number-one incentive for buying a remodel is the potential for a high profit. If you purchase a home well below market value, fix it up, and then sell or rent it, you’ve created instant equity in the home.
- Another pro is the ability to recreate it to fit your specific taste. Perhaps you don’t have the money or ability to build a new home. Remodeling can be less expensive, and you have the opportunity to fix the home up to suit your needs.
- Many people love a certain neighborhood, and will buy a home in any shape just to have the location. They will add square-footage, and renovate until they have turned it into their dream home.
- In many cities, the permit costs are lower if you remodel instead of building from scratch. Many developers often take advantage of this angle, saving thousands in building costs. Essentially, they can strip the house down to the foundation and build something completely new without having it classified as a new home.
- A popular trend is to restore the original beauty of a historic home. This is often the case in historical districts; new owners want to restore a home to its original beauty while including the modern comforts.
- The possibility of getting in over your head. The project ends up being far more intensive than you expected.
- The remodel eats up any potential profits. The longer a remodel takes and the more problems you encounter, the less equity you build in the home.
- There are many new homes sitting untouched on the market. New-home construction took a hard hit with the economic downturn, leaving many contractors more than willing to negotiate. You may be money ahead to buy new without incurring the headache and extra investment.
- Disrupting your family. Remodels can be stressful, especially if you are trying to live and function within the home at the same time.
- The danger of over-remodeling your home. With a slower real estate market, you do need to evaluate where to best invest your money in your home. Perhaps it isn’t the best time to do a high-end kitchen remodel. Use the help of appraisers and realtors to decide where to draw the line in your remodeling.
Even with some of the potential drawbacks, historically, buying fixer-uppers has normally paid-off for investors. Just be sure you make an informed and well-educated decision before purchasing a remodel. A key step in this process is obtaining estimates from pre-screened remodeling contractors.