If you have been on the hunt for a new house, chances are you have encountered some listings that describe a property as “in need of a little TLC,” having “huge potential,” or being a “renovator’s delight.” These descriptions fit a fix-upper home perfectly.
In real estate jargon, a fixer-upper is a house that requires some serious repairs and renovation. Buying this kind of property brings certain benefits, but you also need to carefully consider a range of factors as one miscalculation can result in huge pitfalls.
If you are on the fence about whether buying a fixer-upper home is the right move for you, this guide can help in your decision.
What are the benefits of buying a fixer-upper home?
There are several reasons why home buyers may find a fixer-upper appealing. Here are some of them:
1. Lower purchase price
Fixer-upper homes are typically sold below market value, so they can pave the way for you to get into the property ladder sooner. You may also have room to negotiate the price, depending on how the building and pest inspection will go and how long the property has been on the market. If you have saved enough, you may not even need to take out a home loan.
2. Sweat equity
Any improvements or renovation work you take on should increase your home’s equity. This means the repairs and upgrades you do must raise the value of your property. Building equity can work to your advantage, especially if you are planning on refinancing your mortgage or selling your home for above market value.
However, if you are purchasing a fixer-upper with the intention of selling it later, you need to make sure that you do not overcapitalise on your renovations. Going overboard with your upgrades may raise the value of your property well beyond what buyers are willing to pay to live in your area.
3. Opportunity for personalisation
Purchasing a fixer-upper house gives you the opportunity to put your personal stamp on the property, which can feel very rewarding. This works especially if you are looking for a place to live in. If you are buying a fixer-upper as an investment property, however, it pays to be more conservative with your style choices as what may be appealing to you may not be attractive to potential buyers.
What are the drawbacks of buying a fixer-upper?
Despite the potential advantages, purchasing a fixer-upper also has its share of disadvantages, including:
1. Time-consuming renovations
A fixer-upper entails a huge commitment because home renovations require plenty of time and effort to finish, even if you are enlisting the services of professionals. You need to be constantly accessible to answer questions tradies may have or instruct them on how you want certain tasks done. You also need to choose the materials and fixtures and coordinate their delivery, especially if you opt not to hire a project manager. Renovations may take even longer if you are doing the job yourself. This is where setting a realistic timeframe and having the foresight to anticipate potential issues come into play.
2. Unexpected repairs
While a dated kitchen or bathroom is easy to spot and replace, structural issues are not – and they can easily eat up your budget. This is why conducting a building and pest inspection is a must before buying a fixer-upper. They can let you know beforehand if the property is worth the time, effort, and money. Here are signs that a house may have serious structural damage:
- Cracks in the foundation or masonry walls
- Discoloured, peeling, or bubbling paint, which can indicate water damage
- Undersized framing in roofs or floors
- Sagging in rooflines, floors, or exterior walls
- Termite damage
- Signs of mould
3. Buyer’s remorse
Renovating a fixer-upper can also be mentally and emotionally taxing, especially when issues and costs begin to mount. Some home buyers are not built to deal with the stress that comes with taking on a huge project.
What factors should you consider before buying a fixer-upper home?
To find the right fixer-upper, you need to plan and prepare accordingly. Here are some of the most crucial factors that you should consider:
1. Renovation cost
The goal in buying a fixer-upper is to end up with a property that is worth more than you paid for. While you can purchase the home at a much lower price, you also need to consider the cost of renovation and repairs. When working out your budget, it is advisable to leave between 10% and 20% buffer for unexpected repairs.
Check out what amenities are near the house. Are there schools in the area? Are retail shops and other lifestyle amenities easily accessible? Is the property along a busy main road? If the fixer-upper is in a desirable location, then it may be worth the money.
3. Good bones
In real estate parlance, “good bones” is used to describe a fixer-upper with structural, electrical, plumbing, and mechanical systems in good condition. The building inspection report can reveal if the property you are eyeing is structurally sound.
4. Local and council regulations
It also pays to check what renovations are permitted by the local council. Some councils, for example, do not allow home extensions to be built or the façade to be changed. There may also be restrictions on which trees you can remove from the property. If your plans include any of these, it is best to check ahead of time to see if they are in line with council regulations.
Carefully assess what renovations you will be doing and how much time and effort these will entail. This will help you set a realistic timeframe on when you can move in or put the property in the market.
Collections: Mortgage News