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Many buyers would rather continue to live where they are than buy a fixer-upper. Renovating a home is a lot of work, and the work can disrupt your life. Also, it's often hard to know in advance how much the project will ultimately cost. But for some buyers, buying a fixer-upper can be a cost-effective solution to their housing needs.
Properties that need a lot of work are usually offered for sale at a discounted price. If you're attempting to buy into a high demand, high priced neighborhood, a fixer at a reduced price could represent a prime opportunity.
Just make sure that you know what you're getting into before you complete the purchase. Have the property inspected by qualified professionals, and get estimates from reliable contractors for necessary repair work. Fixer-uppers usually sell at a discount because of deferred maintenance and functional obsolescence. In an extreme case, repairs can run in to the hundreds of thousands of dollars.
Recently a couple with two small children made an offer to buy a fixer-upper in Piedmont, a city with an excellent public school system. The demand for homes in Piedmont is currently so high that some listings in good condition sell for significantly over the asking price, sometimes with as many as 10 and 11 offers.
This Piedmont fixer presented an opportunity to buy at an affordable price. The buyers plan to live in the property in its present condition while they save money for an extensive renovation.
HOUSE HUNTING TIP:
The couple in the above example was methodical in their approach to purchasing their Piedmont fixer. They were preapproved for a mortgage so they knew what price they could afford to buy. They studied comparable sales information. Fortunately, they had seen most of these properties.
They had experience renovating their current home, so they were able to come up with a ballpark estimate of how much it would cost to renovate the property. They had lived through remodeling projects and knew first-hand how disruptive the process can be.
Numerous inspectors scrutinized the property. The inspections revealed that both the roof and the foundation needed replacing-two large unanticipated expenses. Through further negotiations, the seller agreed to lower the purchase price by half the amount of these repairs.
The buyers also consulted with an architect who was familiar with the Piedmont Building Department requirements. This revealed that getting approval for the remodel would be a lengthy process. Armed with this information, the buyers decided to go ahead with the purchase. Less experienced buyers shouldn't even consider a project of this magnitude.
An issue for most buyers contemplating a major home renovation is whether they will be able to recoup the costs when they sell. In most cases, the answer is: not immediately. Fix-up for sale projects involving minor cosmetic improvements are usually profitable when you sell. But, you usually don't recoup 100 percent of your investment on a major remodel done just before you sell.
Major renovations completed for your own benefit usually pay off if you live in the property long enough. Your home should appreciate in value over time. You'll earn appreciation on an asset that has been made more valuable by your renovations. Plus, you'll enjoy the benefits of the improvements while you're living in the property.
THE CLOSING:
Buying a fixer isn't for everyone. But if you do decide to take on such a project, go into it with your eyes open. It could take longer and be more frustrating and expensive than you anticipate. Fortunately, the results are usually worth it.
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