There’s a thin line between a great investment and a money pit when you’re buying a fixer-upper for a home. You might be surprised how many first-time buyers are asking realtors to find them an incomplete house.
The reasons for this can be summarized in two things. First is the cheaper selling price, and second, the buyer is able to redesign the home according to their own style.
Before you get excited about snatching up that charming fixer-upper, be sure you do the following things.
Great Investment vs. Money Pit
It only takes one structural problem to quickly pull you down into a cash flow quicksand. You know what the fox told the Prince in St. Exupery’s novel? What is essential is invisible to the eye. That maxim is also applicable when buying a house.
Make sure to use a qualified contractor to inspect the house from roof to basement and even underground if necessary. Communicate with your agent to bargain for a better price if there are problems that may require big money to repair.
Knowing When to Borrow
There are two ways to go about the renovation. You can use your extra money to fix the house according to your liking or you can borrow money needed for restoration and redecoration. What you may not know is that the FHA has a program specifically designed for fixer-upper homes dubbed the FHA 203(k) rehab loan. Fannie Mae also has a similar program.
If that is not available, you can borrow from private mortgage lenders with the downside usually being that the length of repayment is much shorter compared to conventional lenders.
Now, if you are looking for a fixer-upper, it should be in a good location that is near a quality school, your place of work and a grocery store. A good neighborhood can go a long way if you decide to sell your house in the future.
The layout of the home also matters. Most families want an open concept home, but with older homes, the inner wall often also acts as a brace for some of the load. You can’t just start knocking down walls without compromising the integrity of the structure.
Set a Budget and Stick to It
To renovate a fixer-upper, it’s important that you try to stick to a budget because it’s very easy to spend all your money on your pet project. Set your priorities first. What is the area of the house you can’t live without? For most people, it’s the kitchen and the bathroom. For some, it’s the bedroom and the porch. So, consider which are more important to you and allocate your renovation costs for those areas.
Finally, hiring a professional will often drain your resources. Limit professional services to plumbing, electrical, and structural issues. The rest can be done using the old-fashioned DIY method. You don’t need to have actual experience to do this because the Internet can be a rich resource of instructional videos on every aspect of the renovation process. Youtube is your friend when it comes to remodeling your home.