The real estate market is really tough for home buyers right now. Low inventory, inflated prices, and high interest rates have combined into a demoralizing cocktail of market forces. It’s frustrating.
To break into home ownership, many consumers are realizing they will have to make some concessions or consider some alternative strategies. One of these strategies is to forgo purchasing the elusive move-in ready home and instead purchase a fixer upper. These can be easier and cheaper to purchase, but of course, they can come with a load of expenses and hassles on the backside of the purchase.
So, if you are one of the buyers who is considering purchasing a fixer upper (as my wife and I did several years ago) here are a few things you’ll want to remember.
1. Location, location, location.
A lot has changed about the real estate market in the last few years, but there’s one thing that has not changed. Location is still the most important factor in determining the value of any piece of real estate. Give me the worst house in the best neighborhood versus the best house in the worst neighborhood any day of the week. Remember, you can theoretically change anything about a house except the location. If you’re going to buy a fixer upper, make absolutely certain that once its fixed up, the value of the surrounding homes will support the money you’ve invested in it.
2. Buy something with good bones.
It’s sort of a cliché in the real estate world, but good bones are essential. But what does it mean that a house has “good bones?” If you’re buying a fixer upper it stands to reason that you probably intend to make some changes. But “good bones” generally means that those changes won’t be structural. Cosmetic alterations like paint, flooring, and fixtures are relatively easy and inexpensive to make. They just require vision. Removing walls or making additions, in contrast, can be far more costly and time-consuming. Avoid making these more involved renovations unless you are extremely experienced in this realm.
3. Remember to have vision.
One of the beauties of the residential real estate market is that it’s filled with typical consumers, and the typical consumer has very little vision. They don’t see what a house can be with a little money and a lot of TLC. This is where the opportunities lie. If you can muster some vision to see beyond what is to what could be, you can get a great deal on a fixer upper.
In 2019, my wife and I had been searching for a home for going on four years. There were a couple of “dream neighborhoods” we had our eyes on, but the average prices of homes in those neighborhoods put them seemingly out of reach for our modest budget. However, in December of that year (the worst time to list a home) a house finally came up in one of those neighborhoods listed just barely within our price range. The catch--it was terribly ugly and needed some serious updating. It was tough to catch the vision. However, as we walked through it, discussing the possibilities, we both began to see what could be if we made some substantial changes. Those changes took time and money – even more time and money than we anticipated. But several years later, we are still living in our dream neighborhood in a house that we have customized to our liking.
4. Make sure your renovation budget is more than sufficient. Expect the unexpected.
Our successful fixer upper story was not without its snafus, however. As often happens, we ran into several “unexpected” issues during our renovation. These cost us additional time and money. TV home renovation shows are replete with these kinds of stories. Things always come up. The key is to formulate thorough renovation budgets with experienced contractors and even then, to make sure you have additional monies to cover any overruns. There is nothing worse than having to stop in the middle of a project because you run out of money. A good rule of thumb is to allow an extra 25% over and above projected estimates.
Buying a fixer upper is a challenge. There’s no way around it. But buying any kind of house is a challenge in this market. If you choose to go this route, understand that you are committing a significant amount of your time and money to this project. Quitting in the middle will not be an option. But for those with the financial, physical, and mental wear-with-all to see the project through, it can be a very fulfilling and profitable ticket to home ownership.