7 Things to Do Before Investing in a Fixer Upper
Fixer uppers are all the rage right now. With hot shows on TV like HGTV’s Fixer Upper featuring the beloved Chip and Joanna Gaines, or Property Brothers hosted by the famous Scott brothers, many people are realizing that some old homes are worth saving.
There can be cost savings in fixer uppers, but in many cases, they can turn out to be a money pit. So how do you know if a fixer upper is worth the investment? To find out, here are seven things you should do before you buy a fixer upper.
Research Zoning — Most cities have zoning districts limiting properties to certain uses. Check the zoning on the home you are looking at to find out just what you can and cannot do with the property. For example, depending on the location of the home, there may be particular requirements you must adhere to in the remodeling process to ensure the home maintains its historic value.
Get an Inspection — Having your potential home inspected is a must, whether you’re purchasing a ready-to-move-into home or one that needs some work before it’s livable. A home inspector will identify any potential structural issues, such as plumbing, electricity, roofing and foundation. Be sure to ask about age of home systems, such as the heating and air conditioning unit, and find out if the amount of power coming to the house needs an upgrade to suit the average family’s electricity usage. Read more in our blog, Why Get A Home Inspection?
Price the Cost of Repairs Before Making an Offer — Some flaws you’ll see in a fixer upper are merely cosmetic and can be easily fixed with a coat of paint or new floors, for example. On the other hand, some repairs can really drain your budget. Before making an offer on a house that requires major repairs or replacements, such as sewage, septic, heating and air conditioning, foundation or driveway work, do a walk-through with your contractor and get a written cost estimate on repairs. If you plan to do the repairs yourself, don’t forget to price the cost of supplies. Tack on an additional 10 to 20 percent for unforeseen problems that often occur with a fixer upper home.
Ask for a Discount — In many cases, a home that requires renovations can save you 20 to 40 percent of the original asking price. Be sure you’re not paying for more than you’re getting with them home and factor in the costs of your engineer or inspector into your offer price. It is customary to add on a fee for “the hassle factor,” which accounts for estimated time and money you’d spend living elsewhere while the home is being renovated into a livable space.
Get the Right Loan — Depending on the amount of repairs and renovation needed, you may qualify for special financing known as a renovation loan. There are various types of renovation loans available, both conventional and government-insured. A Jumbo Renovation loan covers a dedicated amount of non-structural repairs up to $250,000. A 203k loan is insured by the Federal Housing Administration and allows you to buy a home that’s in need of major repairs and/or renovations. Under this loan, repairs can be structural and/or cosmetic in nature. Ask a qualified home lending expert at PrimeLending which type of loan is best for your situation.
Decide What You Can Do Yourself — No matter how many episodes of Fixer Upper you’ve seen on TV, don’t assume you’re a DIY expert. Taking on a remodel project you don’t know how to do can cost you time and money. Some repairs, such as electrical work can be dangerous if done by an amateur. Assess the improvements that need to be made and decide what you can do and what you’ll need a professional’s help on. For example, an architect can help determine if knocking out that wall is really a good (and safe) idea. In addition to a professional architect, consider hiring a contractor you can trust who will see your renovation through to the end.
Choose Projects that Pay — Some simple upgrades and improvements, such as paint, floor refinishing and drywall repairs generally have a high return on investment. Updated kitchens and bathrooms, new light fixtures, doors and windows, shutters and siding are other improvements that generally cost much less than their return in market value. Major additions such as adding an extra bedroom may cost as much or more than their return (however, adding a bathroom can be worth twice as much!) According to the National Association of Home Builders, for maximum resale value, remodeling investments should not raise the value of your house more than 10 to 15 percent the medial sale price of other homes in the area.
Buying a fixer upper can be a great investment with a large return, but In some cases, a fixer upper that seems like a great deal may actually turn out to be too expensive and not worth the investment. Once you’ve assessed the necessary renovations and costs of improvements, be comfortable walking away from it if it’s a bad deal.
Work with professionals you trust, including a PrimeLending home loan expert to help you decide if buying that fixer upper is the best decision for you and your budget.