Last Updated on October 7, 2021 by Maggie Looker
Are you thinking of buying a fixer-upper? Purchasing a property that needs some renovating is a terrific way to move into an otherwise unaffordable neighborhood. But, there are also a lot of risks and hard work that go into flipping a home. Here are some tips to help you know what to look for and how to purchase a fixer-upper.
Finances
One thing you’ll need to determine is how much money can you afford to spend on a house. Keep in mind that you’ll need a significant amount of money for repairs in addition to the purchase price. Luckily, there are many loan programs available to assist you in buying and renovating a fixer-upper.
The FHA 203K Home Renovation Loan is a popular renovation loan because it allows a borrower to combine a mortgage and renovation funding into one loan payment. It works like this: if you qualify for a total loan amount of $200,000, you could buy a house for $140,000 and spend $60,000 on renovations.
Hero Rewards
Homes for Heroes wants to help you achieve your dream of buying a fixer upper. Just by using a Home for Heroes affiliated real estate agent, you’ll receive a Hero Reward check after closing. Hero Rewards you’ll receive are equal to 0.7% of the purchase price, so for every $100,000 in house price you’ll receive $700. The money will come in handy during your renovations.
We do this to say thank you to the heroes in our community. Law Enforcement, Firefighters, Teachers, EMS, Healthcare Workers, and active or retired military all qualify as heroes. Sign up now to get started with an agent to find your fixer upper.
Construction Ability
The home renovation show hosts you’ve probably seen on TV are experts. They’ve been flipping and renovating homes for years before their TV shows were picked up. Keep that in mind next time you’re watching and think “I can do that!”.
Do you have any experience with tools, plumbing, or electrical systems? While you can find out how do a lot of home DIY on YouTube, it might be valuable to have someone with experience take care of them. An honest evaluation of your construction ability is a crucial consideration since renovating a home takes significant skill and effort.
Also think about how much time you can devote to work on your home. If you work full-time and plan to fix up in your spare time, is your timetable achievable? You’ll have to pay a professional to do anything that you can’t complete by yourself, so consider if you can afford to hire people for an extensive remodel. But if it’s something simple like removing carpet or changing light fixtures, you most likely will be able to do that yourself and in a relatively short time.
You’ll have to take the age of the home into consideration as well. Older homes probably won’t have up-to-date electrical systems, so you might need to call an experienced electrician to upgrade the electrical panel. There can also be asbestos in older homes, and removal of that requires experienced professionals.
Finding a Fixer Upper
Finding an appropriate house that fits your needs and budget takes work. Fixer uppers are not all the same, so it’s helpful to rely on your real estate professional for advice. Your agent understands your situation and the home renovation trends in your community. Your real estate agent knows what is available in your area and is in a terrific position to locate potential properties. Foreclosures and estate sales often yield outstanding fixer-upper opportunities.
Some factors to consider when choosing a fixer upper are:
- Location – Is this a location that you actually want to live in? Or, if you’re looking to flip, is this an area that someone would be willing to buy a good-condition home?
- Neighborhood Fit – Does it make sense to fix up a home in this neighborhood? Will you get a return if you do?
- Relative Value of Nearby Homes – If you fix up a home in a neighborhood and put it on the market for double the price homes are being sold at, it can be hard to find comps nearby to justify the price. This can cause the home to sit on the market for a long time, or for the appraisal to come back under the price you’ve put on it and could cause potential sales to fall through.
- Amount of Renovation – If you know you only have time or budget for a few fixes, keep that in mind. If the homes you’re looking at have obvious major flaws, like foundation issues or water damage, you’re probably going to be in over your head.
Be prepared to tour some possible homes in your area, as it can take time to find the perfect house. You’re committing substantial financial resources, along with an enormous amount of effort, into making this your dream home. Choose a home that deserves all your sweat and spending.
Inspections
Once you find a potential house, it’s time to hire a professional home inspector. Even more than with a regular house purchase, inspecting a fixer upper is a must because the report gives you information to help you decide if you can handle and afford renovating the property. Does the structure just need cosmetic improvements that you can tackle over time? Or on the other hand, is the whole house in danger of collapse?
Some areas that the home inspection focuses on include:
- Electrical
- Plumbing
- Foundation
- Roof
- Walls
- Floors
- Decks
- Heating & Cooling
- Windows
Along with letting you know the severity of the renovation task, an inspection report gives you negotiating room with the seller if the structure suffers from significant defects. It will let you know if you will need to make some simple repairs, if you’ll need to contract a professional, or if you will need to totally gut the house top to bottom. This inspection will also help allow you to plan a budget. Some problems are tremendously costly to repair, and you need to know them before you make an offer on the house.
Experts recommend that you also consult a contractor before you purchase the home. Your real estate agent can sometimes suggest local contractors experienced in renovating homes like the one you are contemplating. The contractor will examine the property and, using information from the inspection reports, provide an estimate of the cost to remedy any issues found in the house.
Money Reserve
It’s important to keep in mind that the estimate from the contractor may not end up as the total cost of the renovation project. Unexpected issues, like things that didn’t show up in the inspection or additional permits, can add to the final price. Make sure that your renovation budget sets aside funds to cover these budget hits. A typical contingency fund is 5 – 10% of the total budget.
While you might have the budget determined knowing you’ll need paint, tile, carpet, etc., keep in mind that there can be a huge difference in price based on design preferences. A simple subway tile could cost something like a dollar a tile, whereas a 12″ x 24″ Italian marble tile could run as much as $30 or more per tile. Keep the design prices in mind when making your budget, and also while looking at design trends.
The Offer
Now that you have a decent idea of how much money you can borrow, along with how much it will cost you to renovate the house, it is time to craft an offer to buy the property.
In most cases, a realistic offer looks at the prices of similarly updated homes in your area have sold for, then deducts the amount you’ve determined it would take to get the house from the state it’s in to “fixed up”.
For example, if an updated house in your neighborhood sells for $250,000 and the repairs are estimated around $40,000, it makes sense to offer approximately $210,000. The amount that you can reasonably deduct from the asking price depends on the status of the market. For example, in a hot market, a seller has little incentive to give a discount on the list price.
Surprises
There’s an old saying in a home renovation that you never know what to expect until you open the walls. Renovating a home is fraught with complex challenges that can lead to construction delays and cost overruns. You never know what might happen. Careful planning and preparation should keep a construction surprise from turning into a disaster.
Renovating a fixer upper is a great way to move into the home and neighborhood of your dreams. You can overcome the obstacles involved in home renovation through careful planning, patience, and lots of effort. For advice or help on buying a fixer-upper, contact one of our real estate specialists today.
