With housing prices continuing to rise, it may be tempting to purchase a “fixer-upper” – a home that can be purchased at a lower price, but requires some work. The idea of getting a property for a bargain rate, and being able to customize and fix it up to the owner’s preference, seems like an advantage.
However, as fixer-upper homes come with their own risks, SetSchedule CEO advises that home shoppers proceed with caution. First-time buyers, especially, often underestimate the amount of work that needs to be done, and the cost of those repairs.
“The reality is that in all likelihood, the price point of the home is already at fair market value based on the repairs required,” Mr. Dekel said. “In most cases, the buyer will end up overpaying on a property that they thought was a bargain.”
If a buyer has their heart set on buying a fixer-upper, however, there are steps they can take to minimize their risk and keep from getting in over their head. An experienced real estate agent and trustworthy inspector can advise the buyer on exactly what repairs will be required, and how much they are likely to cost. Buyers should make sure that any property they make an offer on should have an inspection clause in the contract – that way, should the inspection reveal significant structural issues, the buyer can back out.
The foundation and the roof of the home are the first two places to check, Mr. Dekel recommends. Those two places are where the repairs can become most costly.
Buyers looking for an investment property, or a second-time buyer who has equity and cash and has the experience of home ownership – and a realistic expectation of the maintenance involved – can still stand to benefit from buying a fixer-upper, Mr. Dekel said.
“If you can do the math and realistically ensure that you’ll get a return on the money you’re investing, then that’s fine,” he said.
To make sure the project is worth the money and labor, Mr. Dekel suggests that a buyer should find a trustworthy contractor who won’t subcontract most of the work before making a purchase, and discuss the project with them ahead of time.
“Between the inspector, the agent, and the general contractor, the buyer will have the ecosystem they need to renovate the home,” he said.
To find the right professionals, referrals are usually the ideal starting point. Having friends, family or neighbors who can recommend people with whom they’ve had a good experience can provide peace of mind for a buyer. Always check online for the contractors’ and inspectors’ licenses to make sure there are no complaints, and be sure to get references, Mr. Dekel adds.
It’s not necessarily a requirement to find a real estate agent who specializes in investment properties; rather, Mr. Dekel recommends finding an agent who is communicative and knowledgeable about the area where a buyer is looking for homes.
A buyer’s best bet is to remember the first rule of real estate: location. In this case, that means choosing a fixer-upper in a desirable neighborhood and good school district, Mr. Dekel said. That way, even if the home takes awhile to renovate, the buyer at least feels comfortable with their surroundings.\
“Even if you make a mistake with the property itself, at least you won’t have made a mistake with the area,” he said.