Buying a property to fix up, or a fixer-upper as it is known is now popular than ever before. Many homeowners are buying a second property hoping to make some extra money. For instance, you can buy a fixer-upper and rent it out to make extra income. Alternatively, you can flip it once you have finished fixing it up.
Choosing the Right Fixer-Upper For You
When it comes to buying a home that is in need of repair, there are many things to bear in mind. However, there are some simple rules that you should follow.
Should you purchase any property? No, you should be as selective as to when it comes to buying a home with deferred maintenance as you are when you buy a turn-key property. It is easy to take on too much when it comes to buying a fixer-upper.
When you first look at a property, you should try to assess the amount of work involved. Home renovation can easily turn expensive if you take on too much. It is important to match your skills to the property you are thinking about fixing up. Also, consider what you are going to be renovating. Kitchen remodels can be expensive, but do provide a good return on investment. Garage renovations are something that will add value and may not be all that costly.
Bringing in a contractor to do work on the property can quickly become expensive. The more of the work you can do yourself will mean making more profit when you go to sell the property.
Should I Take Out a Mortgage?
Obtaining a loan from a mortgage lender is one way to finance a fixer-upper. If the property is going to be your main home, taking out a mortgage is a good idea. But, if you are going to flip the property, taking out a mortgage may not be such a good option. There are some excellent mortgage questions to ask when talking to a lender.
A short-term mortgage can cost you a lot of money in fees and there may be penalties for paying it off early. If you are going to flip the property quickly, the mortgage can end up costing you a lot of money and wipe any profit you were home to make.
There are specialist mortgages available and you should check with your lender on what options they can help you with.
It Is All About the Money
Above all, you should consider how much it is going to cost you to complete all of the work. If this is your first time investing in a fixer-upper or home renovation project, it is a good idea to bring someone who has previous experience of renovation projects to one of the viewings.
If the project turns out to be too costly, it is much better to walk away and say no.
Remember that any specialist work needs to be carried out by specialist contractors and you may even have to get permits. Bringing in a contractor adds costs to any project. You should make sure you ask for written estimates for all of the work that you would like the contractor to carry out.
What About a Home Inspection?
You may be spending your own cash, but that is no excuse for forgetting about the home inspection. A qualified home inspector can pick up red-flags that you have not noticed.
Don’t forget to check the heating and air conditioning. Replacing an HVAC system can run into as much as $10,000. Are you sure that you have that money within your budget?
Also, if you are an inexperienced home buyer, you may not notice moisture or other problems within the home. Moisture issues are one of the most common problems in properties that need fixing up. The problem is that moisture issues can also be some of the costliest renovations projects to take on. Mold can develop as a result of water or moisture issues.
In short, try to do as much work you can yourself before you call in a contractor. If you have a friend or family member with previous experience, ask for their advice.
Think about who is going to help you to fix up the property. If you are going to ask your partner or wife to help you, you want to make sure you are still together by the end of the project. Working together can easily lead to conflict and you should bear that in mind.
Consider How Much Time it Takes
There are many considerations when purchasing a fixer-upper home. You should also factor in time. How much time is the property renovation going to take up? Do you have enough time, and the inclination, to work on the property after you have finished your regular job?
However, taking on a fixer-upper or a renovation is not a bad idea. Never take on more than you can handle, check your budget, and if you are going to flip the property, make sure that you are going to make a profit.
If you are not sure, seek advice from a real estate agent. You never know, your local real estate agent may just have the right fixer-upper or renovation project waiting for you.
Buying a home that is in disrepair is not for the faint of heart. You need to establish a budget and allow for 5% to 10% additional for the unexpected issues that arise. Try to avoid the "while we are at it" mentality as that can add additional costs to the scope of work. You may also obtain a mortgage for the purchase of the home along with the additional funds to renovate the home.