Homebuyers can go a myriad of different ways when it comes to the type of house they’re looking for. Some might want a brand new home built through modular construction, which can reduce energy consumption by about 67% during the building process and reduces the future occupants’ energy costs as well. Other buyers may want an older home with personality and charm, but few improvements that they would have to make. Still, other house hunters may be looking for a fixer-upper. This last category of homebuyer often decides to go this route because a fixer-upper tends to cost significantly less than other houses on the market and they can renovate it so that it fits their tastes and style.
If you get too caught up in the low price and potential to customize the house to your liking, however, you may end up with a money pit of a home. The key to purchasing a fixer-upper is to determine if it will end up costing you more than its worth. Let’s dive into how you can figure that out.
Carefully Consider What You Can DIY
If you’re handy with a hammer, you may be able to tackle a lot of the renovations your fixer-upper needs on your own. Even if you’re confident in your remodeling skills, however, you need to carefully consider whether you’ll be able to actually complete the jobs you plan to. Remodeling shows on TV may make any home improvement project seem simple, but in real life, certain projects tend to take a long time and lead to low-quality results that won’t help boost the value of your home when you try to sell.
As you tally up the number of home improvement projects your fixer-upper would need, be sure to do your research on how to complete the projects. While you could probably handle easier jobs like stripping wallpaper and painting, you likely wouldn’t be able to do more technical work like rewiring the electricity. You will also have to think about the time all of the projects will take and whether you have that available in your schedule. If you need to move in sooner rather than later, you’ll also need to consider whether or not you want to be living in a work zone for weeks or months.
Price the Renovation Costs
Once you know the projects that you will and won’t be able to complete on your own, its time to break out the calculator. This is one of the most important steps, as this math will help you figure out if this house is a smart investment. Real estate is a popular type of investment, with about 89% of investors interested in putting their money into real estate, but it can easily take a turn for a worse if the price of renovations outstrips what you paid for it.
If you’re working on projects yourself, you’ll need to price the supplies that you’ll be using. If you need to hire a contractor for any of the projects, get them on the property to do a thorough walk-through and give you a written estimate on the projects they would complete. For both totals, add on 10% to 20% to account for the unforeseen problems that often come up when working on a fixer-upper.
As you’re pricing these projects, don’t forget about all of the other costs of moving into a new house. If you’re working with movers, for instance, you’ll have to pay them for their labor. If you’re moving your items yourself, you’ll likely need to rent moving trucks. You’ll also need to factor in any appliances that you need to purchase for the house and their features, such as powder-coated appliances that account for about one-third of all powder-coated industrial parts. Make the same considerations for furniture that you need to buy for your new home to determine what the true cost of moving into this house will be.
Research Renovation Loans
Luckily, there are loans out there specifically for homeowners who want to rehabilitate a home. These renovation loans allow you to finance the house and the improvements at the same time. You would be able to pay off the improvements over a longer period of time and at a lower interest rate than other types of financing. The loan may also help you cover mortgage payments if you need to live somewhere else while you’re working on the fixer-upper. Some loans even include extra funds in case the improvements exceed their estimated costs. Here are a few renovation loans:
- FHA 203(k)
- VA Renovation Loan
- CHOICERenovation loan
Each loan comes with its own restrictions and requirements, but the FHA 203(k) loan is one of the most flexible, allowing for lower incomes and credit scores than traditional mortgages. Better yet, these loans can be used for most improvement projects. No matter which loan you’re interested in, be sure to do as much research as possible so that you understand all of the loan’s finer details.
Buying a fixer-upper is a commitment. You’ll need to give the house a good amount of TLC, all while balancing your life’s regular jobs and responsibilities. By following these steps, you’ll be able to make an informed decision and purchase a house that brings you financial and personal happiness.