Is Buying a Fixer-Upper Worth it?
If you’re thinking about buying yourself a fixer upper, either for yourself or as an investment property, you’re probably asking yourself, is it really worth the time, labour and most importantly, the cost? There are a lot of considerations that go into determined when a fixer upper is worth it, and before tackling such a big project you’ll want to read the list below to make the right decision for you!
Budget and DIY Considerations: When fixing up a home, the renovations costs will begin to add up tremendously, especially if you don’t have a solid home improvement budget for your renovations. Price out exactly how much materials, tools and supplies will cost, or if you’re hiring a contractor, have them do a tour of the home before you make an offer so they can draw up an estimate. This is your first step to determining whether or not this project is within your budget. As for the job itself, you’ll save more money if you DIY most of the renovations yourself, however you’ll need to outsource and budget for a contractor if you aren’t the hands on type, especially when it comes to jobs that take an extra level of expertise. For example, electrical that is wired incorrectly, spells a recipe for a disaster and not only is a safety hazard but will also cost you a great deal of cost down the road. Fixer-uppers are a great choice for those who can either afford a contractor or who have a great deal of home improvement knowledge already and who possess the skills to ensure a DIY remodel is done correctly and safely!
Is the Home Right? A good fixer upper property is one that is in need of more cosmetic fixes and minor remodels as opposed to major structural work. Repainting the home, updating or refinishing the flooring, minor kitchen repairs, replacing out-dated fixtures and hardware, repairing the dry wall, these are all examples of minor repairs. If you’re property is in need of more structural work, you can expect to invest a pretty penny to cover the costs. It’s suggested that before you buy a fixer upper home, you get at least three contractors in to offer estimates about how much the repairs will cost and the extent of the job. We advice against purchasing homes that need major structural work, unless you are certain the damage can be repaired and are financially prepared to tackle the potential hassle and extensive costs associated with such a large project.
Permits: Before even thinking about purchasing a fixer upper property, you should check with city officials regarding the work you plan on doing, and whether a permit will be required and at what cost. If a permit is required, keep in mind that acquiring the permit may take time, as you’ll need to abide by the permit guidelines outlined after the home inspection. The additional work to acquire a permit, and the cost is sometimes enough to deter Buyers’ from fixer upper properties.
Cost of Financing: Undoubtedly the main challenge of purchasing a fixer upper is acquiring the financing to support your home improvement. Keen home Buyers should budget for a down payment and closing costs without having to put themselves in a sticky situation financially. As for additional financing for renovations, larger repairs may require you to apply and be approved for a home improvement or home equity loan. For extra security, you can make an offer contingent on your approval for these loans to ensure you don’t wind up on the hook for the home if your approval does not go through.
Calculate Your Offer: In order to calculate a fair offer for the home, you’ll want to add up the total costs for repairs and updates (including professional labour, materials and tools) based on an estimate of the home’s current condition. Once you have this total, you’ll simply subtract this cost from the home’s fair market value (if it were in perfect shape) using comparables in the neighbourhood. Deduct for inflation also. This value will determine what a fair offer for the home is and whether the purchase is worth it.
The dream of purchasing an older home and dedicating the right amount of TLC to transform it into what you’ve always imagined might seem like dream! But it’s important to thoroughly review all the factors that go into purchasing a fixer upper so you know exactly what to expect before taking that leap! Need more help to determine whether a fixer upper is the right project for you? I’m here to help!