The old house down the street may not look as pretty as the new constructions a few neighborhoods over. It might show signs of major damage or have been unoccupied for years. But that doesn’t mean it’s a bad real estate investment. In fact, whether you’re looking to flip a house, rent a house to a tenant, or move in with your family, buying a fixer-upper like this could be an amazing strategy.
You just have to go in with the right mentality so you don’t end up losing money (or losing your mind).
The Advantages of a Fixer-Upper
There are many reasons to consider buying a fixer-upper:
- Low entry price. For starters, homes that need maintenance or repairs tend to be priced lower. Prospective buyers know that the issues are going to cost time and money to fix, so they’re willing to pay less to compensate. If you know where to look, you can often find a great deal on a fixer-upper property.
- Less competition. Additionally, some buyers don’t want the hassle of a deteriorated or damaged home, so some competitors are removed from the market immediately. With fewer buyers to contend with, you won’t get caught in a bidding war, nor will you be likely to get outbid by a cheeky all-cash buyer.
- Control and customizability. If the home needs a major facelift or a structural overhaul, you’ll have the potential to make all the changes you want. You can almost rebuild the house from the ground up, turning it into a custom project. You can turn it into your personal dream home or outfit it with everything you need to make it a perfect rental property.
- Charm. Some people like the aesthetic appeal of houses in need of some love. They don’t mind living in a house that needs a bit of work, and they like the experience of seeing it transform into something more beautiful.
- Potential turnaround. Even more commonly, people are drawn to fixer-uppers because of the potential turnaround. Run-down and overlooked homes are a great opportunity for house flippers; if you make major changes to the home without spending too much money, you may be able to sell the home for far more than what you paid for it.
- Personal enjoyment. Of course, some people like to buy and flip properties because they genuinely enjoy it. They find home repairs and upgrades fulfilling – and consider it a hobby as much as a job or investment.
Three Risks to Guard Against
Buying a fixer-upper isn’t always a good decision, and it won’t always work out in your favor. There are three major risks you’ll need to guard against:
- Spending too much money initially. One of the biggest advantages of buying a home in poor condition is fetching a great price. If you spend too much initially, it could rob you of that advantage.
- Spending too much money on repairs. It’s also possible that you spend too much on repairs and upgrades, either because your initial estimates were too low or because more repairs became necessary.
- Taking on more than you expected. It’s not just about money. If the fix-up project turns out to be more complex, more stressful, or more overwhelming than you expected, it could wreak havoc on your mental health – all in addition to wrecking your profitability.
Important Strategies When Buying a Fixer-Upper
These strategies can help you ensure you get the best possible results from your property purchase:
- Work with a real estate agent. Buyer’s real estate agents are indispensable, helping you find more properties to view and providing you with advice and suggestions along the way. Best of all, buyers don’t pay the commission – so there’s no downside to working with an agent.
- Set a firm budget. Before you jump into a bidding war or start speculating on properties that would have you overextend yourself, set a firm budget. Figure out the absolute maximum you’re willing to pay for a property and repairs for that property – then stick to that budget.
- Inspect the home thoroughly. Before buying any property, inspect it thoroughly; never buy a property because of how it looks on the surface, assuming there are no major issues lurking underneath. Hire a professional home inspector to review the property with close scrutiny and take note of any issues you find, no matter how small they seem at a glance.
- Estimate conservatively. Prior to making a bid, you’ll likely make a list of all the repairs and upgrades that need to be completed (and how much they’re going to cost). When going through this step, estimate conservatively; count on there being unseen issues and complexities. This will likely prevent you from being totally blindsided or bankrupted after the purchase.
- Be willing to pass. Not every fixer-upper is worth purchasing, even if the price is attractive. If you want to turn a profit, you need to be willing to pass on multiple deals – and hold out for the perfect opportunity.
- Know when to cut your losses. Similarly, you need to avoid falling for the classic sunk cost fallacy – and know when to cut your losses. If you’re making repairs and you’re in over your head, it may be better to give up and sell the house as is, rather than continuing to dump money into a losing property.
- Get outside expert advice. Niche experts can help you make better decisions and, in some cases, help you do the actual repair work. Build your professional network and get to know experts like electricians, plumbers, and general contractors. The more trustworthy connections you have, the better.
One of the best ways to improve your odds of scoring a good deal on a fixer-upper is to work with a qualified real estate agent. And at Green Residential, we have just the team to help. Contact us today to get in touch with one of our real estate agents, or to learn more about what we do.