Imagine making that fixer-upper sparkle again. Take those sagging shutters, that peeling paint, those outdated appliances, and that ugly wallpaper and rejuvenate their wow-factor. With a few coats of paint, some sweat equity and thorough updating, could this property be your ideal home, or an investment goldmine?
Even though each home is unique in its own way, there are some specific criteria that point to a fixer-upper with good potential. Here are the basic questions you should ask:
What needs to be changed to make this gem sparkle again?
Some homes are structurally sound and only require some cosmetic changes, like replacing that funky 1960’s carpet, those worn-out appliances, or the inefficient heating system which consumes way too much fuel.
It makes sense to carefully evaluate what in the home can remain and what must go. Hire a professional home inspector who can give valuable insight into the mechanical, structural, and system upgrades that should be made. You will want to gather some cost estimates before you dig your heels in too far.
Will the neighborhood support a higher market value?
If you are buying the property as an investment, you will want to recover the value of your investment, as well as your time and the cost of the upgrades and improvements you make. Many who specialize in fixer-uppers only take on a project when they believe they can get a 100 percent return on investment. This equates to two dollars for each dollar invested.
What about the value in the land?
In some areas the land and location may have more value than the old, outdated home situated on it. In this case, the question is not whether it makes sense to improve the home, but to decide instead to tear it down. Essentially, the property’s purchase price will include the expense of removing the old house. The new house you build will cost you above and beyond that.
Will you be able to do the work, or will you need to hire professionals?
The economics of fixer-uppers varies enormously depending on whether you are tackling the entire project yourself or contracting some or all of it out to professionals. For the lowest cost and highest quality, you will want to do much of the work yourself and only call in professionals for the specialized work such as wiring, HVAC, and roofing.
Will the Property Simply Need Repairs Or Total Remodeling?
When contemplating the purchase of a fixer-upper, first consider whether the home is in need of repair, remodeling, or both. Remodeling and repairs don’t usually provide an equal return on your investment.
Repair work includes such major projects as plumbing, electrical systems and foundation repairs. Remodeling involves more aesthetic projects such as kitchen updates, installing tile or wood floors, painting bathroom cabinets, and things of that sort.
Typically, repair work will cost you money, while remodeling should make you money. You can turn your repairs into a remodel and recover more of what you invest in the project. Consider the need to replace and repair a large area of dry rot in a wall. If you combine this with the addition of a bay window, you can turn it into a remodel that raises the value. Property in need of a new roof? Consider turning this into a remodel by adding in some skylights. Add some recessed lighting into a ceiling needing sheetrock repair. Use your creativity to turn a money drain into a money maker.
How Much Time Do You Have To Complete The Project?
Be prepared…everything takes longer than planned. Before you take on a fixer-upper project, be sure to evaluate the amount of risk if you encounter unexpected problems and delays. You may need to adjust and readjust your expected completion dates, and if this is an investment it will delay when you can pocket some profit.
How Will You Pay For Your Fixer-Upper?
A fixer-upper requires two forms of financing. First is the acquisition money to buy the home initially, and then you will need the additional funds to do the actual repairs and improvements. Best case scenario is one loan product that provides both forms of financing with only one closing. Financing for an owner-occupant who will live in the home is much different than funding for an investor who plans to re-sell for a profit. Contact me if you need the name of some lenders who can help with financing.