The cost of real estate seems to be getting higher all of the time. If you’re in the market for a home, you may be considering a “fixer upper” to save some money. There are several factors to consider when buying a home that needs renovation. The cost of your mortgage is only one cost you need to consider. If you’re thinking that you’re a pretty handy person who can do lots of repairs, think about major repairs the home may need. Are you up to the task of replumbing a bathroom? How about fixing bad wiring?
Most home project do it yourselfers can do some things but not major repairs that I’ve mentioned. You’ll need to research the costs of repairs that you are unable to make. You have to factor those into your budget for renovation. Plus, you’ll never know what issues may come up as you fix smaller ones.
Will this house be your home
If you’re purchasing a home as an investment, you’ll likely make different choices than if the home is for you and your family. You don’t have to buy top of the line items if it’s an investment. But for your home, you’ll probably want better flooring and fixtures. Pricing out items should be where you start. Costs of faucets, for instance, can run between a couple hundred to a couple thousand dollars. Some styles automatically cost more.
If the home you’ve chosen needs structural changes made, you may want to check some residential architecture firms to be sure you’re design ideas are viable. You cannot take chances when it comes to the safety of the structure of your home. Regardless of the work you think you’ll need to do to make the home livable, there can always be unforeseen costs such as structural damage or rot. These costs must be added as part of your budget or you can find yourself in a huge bind.
Is there an advantage in buying a fixer upper?
The advantages of buying a home that needs renovation depend on several factors. The first is, of course, the purchase price of the property. You have to purchase a property for an amount small enough that the cost of renovations will not exceed the possible appraisal amount. Again, if you’re capable of doing repairs yourself, you can save quite a bit of money. In today’s market, however, the cost and availability of building materials has skyrocketed. The quotes you’ll be receiving from contractors will generally be 25% or more than it would have been a few years ago.
If the home you’re looking at only needs cosmetic updates; you can more likely take it on. If you can comfortably live in the home while you’re doing updates, that’s the best case scenario. You may be uncomfortable while you’re knocking out bathroom renovations but as long as you have another bathroom, you can make it. The best way to tackle living in a home while doing renovations is to just take one room at a time.
One true advantage to buying a home that needs updating is a smaller purchase price. Making even cosmetic changes to the home will immediately increase the value of the property. Even if you plan on living in the home, an increasing the value of your home is always desirable.
Obviously increasing the value of the home will be helpful if you decide to sell some day. But, increasing the value will also allow you to gain equity which you can borrow against in the future. Being able to borrow against the equity in the home will let you make even more upgrades. A pool or nice deck come to mind when I think of home equity loans. It’s a symbiotic exchange. You create value so you can continue to add value.
Know your limitations
You need to be very careful when considering purchasing a home in need of repair. Be honest with yourself about the kinds of renovations you are personally capable of. It’s important to not bite off more than you can chew. Trust me, big renovations are incredibly stressful; especially if you’re living in the home at the same time. Be prepared to be cramped, dusty, and inconvenienced for an extended period of time. If you can handle that; you’ll be ok. Stretch your dollar as far as it will go.