If you’re shopping for a home on a budget, you may have considered buying one that needs some TLC—but investing in a fixer upper isn’t for the faint of heart. While HGTV may make the home rehab process look glamorous, remodeling a home is far more complicated when Chip and Joanna Gaines aren’t there to do the heavy lifting.
Pros and cons of buying a fixer upper
It can be difficult to determine if buying a home that isn’t turnkey is right for you. While renovating a home is no easy task, buying a fixer upper can be very rewarding if you’re the right person for the job. But if the home needs a lot of work, it can be hard to tell if the time and expense will be worth it in the long run. Here are some pros and cons of buying a fixer upper:
- Finding the perfect home is difficult to come by, but with a fixer upper, you have more leeway to design your new home exactly the way you want it.
- Remodeling gives you the opportunity to increase the home’s value by a significant amount.
- Fixer upper homes are much cheaper than turnkey—typically 8% below market value.
- In the short term, you’ll pay less in property taxes due to the initial lower home value.
- It can take months—even years—before the work is finished.
- Renovations and remodeling can be costly. It can also be difficult to determine the exact total cost of everything, which means there could be some shocking and unexpected costs thrown your way.
- If you need to make structural changes you’ll need a building permit—another big expense.
Making an offer on a fixer upper
Approaching turnkey houses for sale can be difficult enough, so it might seem particularly daunting to approach a home that needs serious renovation. Here are a few tips on how to evaluate the price of a fixer upper, and things to keep in mind before making an offer:
Figure out the value of the house as if it was in perfect condition
Homes in need of TLC are usually listed at a discounted price. In order to determine a post-renovation value for the property, take a look at home prices in the surrounding area. You’ll want to research similar recent sales to see how much they went for.
It is important to take a look at properties that wouldn’t be classified as needing any TLC. Localize is a great resource for this, because our insights include historical prices of nearby properties.
Get a home inspection
Before you purchase a property, a home inspection is essential. While you may have fallen in love with a home’s potential, there could be issues that you can’t see just by looking. Getting an inspection lets you know the home’s true condition, and will give you a much clearer picture on the extent of renovation it needs.
Skipping inspection could lead to missing critical issues with the home, which can lead to ballooning costs in the future.
Estimate the cost of necessary repairs
When thinking about how much you’re going to spend, you need to think about how much repairs will cost. You can easily do this online through websites like HomeAdvisor and Thumbtack. These websites can help you determine cost estimates depending on the various home improvement projects you need.
Figure out the cap budget for the home
After getting a full inspection and figuring out the estimated repair costs, you can determine a realistic offer. Subtracting the estimated cost of repairs from the hypothetical value if the property was in perfect condition is a good.
For example, if nearby turnkey homes are about $500K and estimated repairs are $30K, then you should offer roughly $470K. If you’re still unsure, talk to your realtor or broker about what a fair price might be.
Consider how much TLC are you actually willing to do
It’s not surprising that most fixer uppers require a lot of work. However, the amount of work that needs to be done can range from simple cosmetic upgrades to much more intensive gut jobs. It is important to determine how much work, time, money, and energy you’re really willing to put into a home. This can help you determine what kind of home condition you’re looking for.
If you’re looking for a new home—whether it’s move-in ready or a fixer upper—Localize has plenty of listings for you. Our insights can help you find the perfect home in a neighborhood that best fits your needs and lifestyle.