Buying a home can be tricky business. Some homes are move in ready, others need some TLC. When looking at homes, which one is going to be the best value? Is it better to just buy a home that is move in ready? Or is there still value in buying a fixer and doing a little work?
Deciding On A Fixer Upper Or Move In Ready Home
When deciding on a fixer upper, you need to know what needs fixing. Are the problems with the property structural? Bad wiring, bad foundation, plumbing, termites etc. Or are the problems more cosmetic such as outdated fixtures, paint, popcorn ceilings etc.
Knowing what needs fixing is half the battle. You should take a trusted contractor to the home before submitting an offer. If you are an experienced rehabber, you may not need a contractor, but I would still recommend an inspection.
Get a bid from the contractor and add about 10%. Most the time, projects go over budget, so be prepared for that. If you plan on doing the work yourself, be sure you know exactly what you’re doing. A rehab project gone wrong can seriously affect your pocket book.
How Much Are Repairs Going To Cost?
The other half of the battle is the money. How much is this rehab project going to cost? What value are you going to add? And how long are you planning on staying in the home? There is a great program called an FHA 203k loan. With this loan, you can finance more then the home is worth for repairs. You can get up to an additional 35k on top of your loan.
Also, have you’re Realtor run some numbers. If you bought a comparable home that didn’t need the repairs, what would it be worth? What is the price of a move in ready home compared to the costs of the repairs plus the home that needs the repairs? Does it make financial sense to repair the home? A lot of times buying a home and fixing it up can add instant value. Just be sure you know all the numbers.
Buying a fixer upper and doing repairs may not matter if the neighborhood is in a decline. Is this home the only fixer on the street? Or is there a lot of problems with other homes in the neighborhood?
There is a lot more risk pouring money into a home if the neighborhood is in bad shape.
Your return will be less if the neighbors aren’t doing their part to maintain the neighborhood. One thing I would recommend is to check out the county records. Are home owners in the neighborhood doing okay with their mortgages? Are there forclosures looming? Watch out for neighborhoods with declining home values.
Cosmetic Repairs And Doing The Work Yourself
Almost every home you’re going to look at needs some sort of work in your eyes. As a buyer, you won’t find everything you want in a home, and most buyers realize they will be doing some sort of cosmetic work after purchasing any home. Buying a home that needs cosmetic updating can be a great way to get what you want and bring a nice return on your investment.
If you’re okay with living in an “ugly” home for a couple years as you go from project to project, the cosmetic fixer upper is a great choice. Doing cosmetic projects yourself, such as updating the bathrooms and kitchen, can save you money over buying an updated move-in ready home. Ask your agent what type of updates will produce the best return, and decide if you’re capable of doing the work.
Buying a home, whether move in ready or a fixer upper, is all about what’s going to work for you. If you’re the type of person that can handle a DIY project, go for the fixer upper, you can save some money. If you’re not the fixer upper type, hiring contractors to do the work can end up more expensive then you planned. If you do your homework, you should be confident with your decision.