What are the advantages and disadvantages to purchasing a fixer-upper? Is there such thing as an “over improved” home?
There are three types of preowned homes currently on the market:
- Homes that are move in ready
Homes that are in move-in condition have fewer problems and are as close to perfection as possible. These homes don’t need decorating or renovating and all you need to do is move in your furniture and you’re ready to live in the home.
- Homes in good condition
Homes in good condition are usually outdated and you probably won’t like the decor. The structure however is still intact and the amenities and appliances are all in good working order. In order to get the home where you want it, you might need to paint the walls, replace the carpeting, or strip the floors.
- The fixer-upper
A fixer-upper property might need a few minor repairs or could require a total gut job in order to return to livable condition.
Usually, the main consideration between what type of home to purchase comes down to how much additional money you want to spend on the property.
Most first-time home buyers are going to prefer moving into a home that’s at least in good condition, because of the limited funds that they have access to.
It’s usually a stretch for a first-time home buyer to put down a down payment, so providing additional cash for renovations might be out of the question.
Many home buyers also don’t have the skills or want to learn the skills necessary to fix a home themselves, and therefore require a renovator or decorator, which is an expensive requirement.
What’s great about new constructions is that they’re usually cheaper and require less maintenance in the long run.
However, when you’re able to purchase a fixer-upper or home in good condition that requires renovation, then you might be able to find a home in a better neighborhood, fix up a house that will also provide you rental income, or maximize your investment by building quick equity when the home is returned to move-in condition.
Purchasing a fixer-upper or good condition property isn’t all roses every time however, so you have I understand the disadvantages.
Renovation and decorating are not only expensive, but they’re also messy and chaotic. You won’t be as comfortable in a home that is undergoing renovations as you are in a move-in ready property, and it will never be as clean as you want it to be.
Additional construction always takes more time than was planned for and if you have a spouse, it’s possible that the extra construction and remodeling while you live in a home puts strain on the relationship.
Before you consider investing in a fixer-upper or a property that requires a significant amount of work then you should understand all of the expenses that are necessary for completing the work, what your bill will be when all of your work is completed, and have a good estimate of how long the work will take to complete.
When you’re considering a fixer-upper home, don’t rely on your real estate broker to give you the best estimate on the costs and length of time that it will take to complete your repairs.
Instead, have an architect or contractor walk through the house with you that can give you a ballpark estimate of the work required to return the home to move-in condition.
After you’ve received the estimate, add extra time and about ten to fifteen percent in additional costs to the bill in order to more accurately understand the true costs associated with fixing your home.
Renovation takes more time than most people estimate, and materials always cost more than expected.
If you want to make sure that you aren’t caught off guard then you might want to double the time and add twenty-five percent to the estimate to be sure that you understand how much the renovation will cost.
When you look at the costs associated with bringing the home back to move-in ready status, you have to make sure that the new price of the home will cover both the purchase price and renovation costs of a property.
If you look at other homes in the area, if they’re similar to the one you’ll be fixing up but at a lower cost, then you won’t make any money from fixing up your property.
Make sure that you recover the amount you invest on buying the home and the amount that you invest in fixing the home, and still end up making money by the time that you sell your home.
Always compare your home to the cost of other renovated homes in the area before making a purchasing decision.
When it comes to renovating home, some buyers have the misconception that you can turn a cheap home into the house of your dreams.
Sometimes this works, but sometimes this also fails. When your house exceeds the amount that people are willing to pay for your area then you have overimproved your home with a house whose value outstrips other homes in the area.
When your home exceeds the cost that people are willing to pay because of all the upgrades you’ve put into the house, then you might not be able to recover the cost of all your renovations.