To buy or not to buy a fixer upper can be a tough decision influenced by several different factors. Is it worth the extra work, stress, and discomfort; or are you further ahead if you just buy a move-in ready home?
It basically comes down to the house to determine if it’s worth it to fix it up. Sometimes if a house needs major repairs, it is advisable not to attempt renovation. Use the following 3 criteria to help assess the pros and cons.
Be sure the house is structurally sound.
Before you sign those closing papers, be sure you have obtained a thorough inspection from a home inspector. You want to make sure the house isn’t suffering from any major structural problems. Completely revamping the plumbing and electrical can be an expensive and time consuming process. Basically, the bottom line is, have a clear picture of what you are getting yourself into. This will allow you to negotiate a conservative sales price.
Calculate investment vs. potential gain.
This simple equation will help you decide what your purchase price should be. Calculate all expenses including: hiring a contractor, materials costs, your time, and all permit fees. Subtract that figure from the home’s projected value when completed. You can obtain this estimate from comparing neighborhood values, and from a realtor’s professional opinion. Finally, deduct an additional 10% for extras, unforeseen problems, and inflation. Your final figure should be your purchase price. I would add that you should factor in how much of a profit you need to make to make it worth your while. The point isn’t just to break even, but to build equity.
Arrange financing ahead of time.
Unless you are okay with your project dragging on for years, paying for each step as you go, it is advisable to have your financing arranged in advance. There are many borrowing options, including a home-equity line of credit, a credit card, or a renovation loan. If you’re working with a contractor, your project will move quickly and efficiently if you are prompt with payments and materials.
Renovating older homes to build equity has been a recommended and wise investment for some time. As long as you don’t get in over your head, the pros far outweigh the cons. Ideally, look for projects that just need a few cosmetic touches. The only instances where you’ll find yourself regretting your decision are when you’ve miscalculated time, money, and the disruption to your life. Trying to live in the home at the same time can add more difficulty. If possible, consider moving in after the major renovating is out of the way. Hiring the right contractor will make a big difference as well; contact a certified professional in your area today for a free estimate.