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Fixer-Uppers... Wise Investment or Money Pit?

By
Real Estate Agent with Hagan & Hagan GMAC Real Estate

All homes are different, but there are certain criteria which can help you spot a fixer-upper with good potential. Here are a few basic questions to ask:

What needs to be changed?

There are some homes which are structurally sound that require only cosmetic changes--say that worn carpet from the 1960's, the historic appliances or that inefficient heating system which consumes more fuel than a high school.

It makes sense to inventory a home to see what can remain and what must go. A good home inspection can help you spot mechanical, structural and system upgrades that should be made and also provide some cost estimates.

Does the area support a new and higher price?

If you buy a home for $300,000 and add improvements worth $100,000, are you ahead if area homes only sell for $350,000? What about $400,000? You need to recover the value of your investment, your time and the cost of improvements. Many who specialize in fix-up work won't touch a project unless they can get a 100 percent mark-up--two dollars in new value for each dollar invested.

What about the land?

In some close-in areas, a home may simply not be worth an up-grade; instead, it's the land and location that have value. In this case, the question is not whether to improve--it's whether to tear down. Essentially, the property's purchase price is equal to the combination of what you pay to buy it plus the expense of removing the old house. The addition of a new house is extra.

Who will do the work?

The economics of fixing-up vary enormously depending on whether you're considering a do-it-yourself project or reconstruction contracted out to professionals. For the lowest cost and highest quality, it often makes sense to do both--do much of the work yourself and then call in professionals for specialized work such as wiring, gas and roofing.

How Much Time do You Have?

The general rule for fixing up is that everything takes longer than planned. If you need to re-sell quickly, then fixing-up becomes increasingly risky. If you have more time available, getting the job done becomes more plausible.

How Will You Pay for Your Fixer-Upper?

A fixer-upper requires two forms of financing: acquisition money to buy the home and additional dollars to do the actual repairs and improvements. In the best case, you want one loan to provide both forms of financing so that you do not have to pay for a second closing.

For financing purposes, it makes a big difference whether you're an owner-occupant or an investor not living on the property. For more information and to discuss homes in our area that may have fix-up potential, please feel free to contact us at your convenience.

Thank you for your interest and the privilege of serving you!

With our highest regard,                                                           

Wayne and Lynda Gomillion
Trusted Names in Real Estate

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Comments (1)

Gloria Valvasori, Accredited Senior Agent
BETTER HOMES AND GARDENS REAL ESTATE SIGNATURE SERVICE - Mississauga, ON
REAL Experience | REAL Commitment | REAL Results!

Lynda and Wayne.   great information to think about when buying a Fixxer Upper.  I often have been in that same situation where clients ask me whether or not it is a good investmenet, and I ask many of the same questions on your post.

Good points to remember when looking for a project!  Thanks for posting...

From your fellow GMAC agent in Ontario!

Jun 19, 2010 07:15 AM