The Commonwealth Blog
For some enterprising homebuyers, a fixer-upper can be a great investment. In the ideal situation, an “as-is” home might have peeling paint or outdated shag carpet that scares away most buyers, driving the price down. A DIYer could purchase the home, give it a fresh coat of paint, and uncover the beauty that other buyers couldn’t see.
However, it’s rare for homebuyers to find themselves in that ideal situation when presented with a fixer-upper. Many times, the house will need bigger repairs that require a significant investment of time and money.
Will it be worth it for you to buy a fixer-upper? If it’s something you’re considering, review our checklist to ensure you’re getting a good deal—not sinking into a money pit.
Choose a knowledgeable Realtor. Your first step when you start searching for any home, but especially a fixer-upper, should be to hire a Realtor who knows the local housing market well. Your Realtor can help you determine how much a fixer-upper might be worth once you make some repairs, based on the surrounding homes and the market’s temperature. Your Realtor can also help you determine a fair offer and potentially negotiate a lower price with the seller.
Hire an experienced home inspector. Getting a home inspection should be an item on every homebuyer’s checklist, and if you’re looking at a fixer-upper, you should pay especially close attention to the results of that inspection. Find out if your home inspector is qualified to check for asbestos, radon, mold, lead, pest problems, and interior chimney problems. These issues aren’t always considered in a home inspection but can be important to look at if you’re buying an older home.
Hire a structural engineer. If you think the house you’re looking at is going to require major structural work, you should hire a structural engineer in addition to a home inspector. It will probably cost about $500 to $700 to hire a structural engineer, but they should be able to tell you whether the house you’re interested in will require thousands of dollars in repairs, which could make or break your purchase decision.
See if you qualify for a renovation loan. You may qualify for a 203(k) loan, which is insured by the Federal Housing Administration. This type of loan would bundle the purchase and renovation costs for your home into one mortgage. Because the federal government backs this type of loan, it’s relatively easy to get approved with a low-interest rate.
Estimate your repair costs. Some real estate professionals recommend that you set aside 10 to 25% of your home purchase budget to cover repair costs for a fixer-upper. To make sure your repair costs will stay within your budget, you’ll need to come up with estimates for every anticipated repair project. There are lots of home repair calculators that you can find online, and you can also talk to friends and family who have recently made home repairs to see what they paid. Once you have an estimate, add another 10 to 20% to give yourself a buffer in case there are any unforeseen problems with your new home.
Consider what you’re willing to invest. Before you make an offer, you should think seriously about the amount of time and money you’re willing to invest in a fixer-upper. Decide which repairs you’ll be able to make yourself and which will require a contractor. If you will have to require a contractor, have you factored that into your renovation budget? If you’re going to be making a lot of the repairs on your own, are you willing to give up your weekends for months on end to work on the home? If you’re feeling unprepared to buy and move into a home that needs repairs, talk to your Realtor about looking at move-in ready houses.
Make an offer. If you decide that the fixer-upper home you’ve been looking at is right for you, it’s time to make an offer. If the seller has listed the home at a price that is higher than you’re willing to pay based on the repair needs, present him or her with your repair cost estimates. You and your Realtor may be able to negotiate a lower cost, allowing you to get a home with a lot of potential at a price you can afford.