Published on Tuesday, October 20, 2015 by Land Century
True, there are horror stories of young couples buying rundown homes that swallow their savings. But there are numerous advantages to purchasing a home on the brink of death, and bringing it back to life.
1. Prices are Low
Naturally, homes that need renovation are less expensive. Oftentimes, theyre significantly cheaper than similar homes in the area. If you can manage to snag a rundown home that doesnt need a complete overhaul or to be leveled to the ground you could potentially save yourself a lot of money.
That said, you should be wary of prices that seem too good to be true. If a fixer-upper in a great neighborhood is far below market value, the home may need significant work. Depending on your budget, this may or may not be acceptable. Just be sure that you fully understand the extent of all the work needed, and make friends with a contractor who can give you an accurate estimate on the project.
2. They Can Be Profitable
Fixer-uppers can be very profitable if you can find the right opportunity. People who flip cheap houses for sale for a living know how to sniff out the most profitable homes, but even first time buyers can score a great investment if they know what to look for.
The most profitable homes are those that need mostly minor cosmetic repairs, like painting, carpet replacement and new appliances. Homes that simply need a little updating often sell for much lower prices than their modernized counterparts. Its these types of homes that will help you build equity quickly and make your investment more profitable.
3. You Become the Designer
Buying a fixer-upper is fun. Why? Because you can transform the home into anything you want. From paint colors to carpeting, appliances and cabinets, you have control over just about all design aspects.
While it may seem minuscule, updating the home will add to our second point: profitability. When you make renovations, particularly to the bathroom or kitchen, you increase the value of the home. Essentially, youre generating instant equity that you may be able to use in the future.
4. Great Location Opportunities
Youve fallen in love with a neighborhood. The only trouble is that there arent any homes for sale. Or, there are homes for sale, but they arent in your price range.
Homes that need renovation come at a much cheaper price, and this may be your opportunity to get into the neighborhood of your dreams. It may take some time and money to fix it up, but youll have the advantage of being in a great location. As you know, location is everything in real estate, so being in a great neighborhood will automatically add to the value of your home.
5. Renovations Can Be Financed with a 203k Loan
Youve found a great fixer-upper in your dream neighborhood. You can afford to buy the home, but you dont have the cash on hand to make the repairs. This is where a 203k loan can come to the rescue.
An FHA 203k loan provides homeowners with the financing they need to renovate a home. The best part? This loan is rolled right into your mortgage. With this loan, you can make repairs in a timely manner without eating up all of your life savings.
Things to Consider Before Buying a Fixer-Upper
As you may have guessed, buying a fixer-upper does come with risks. There are some key important things that you need to consider before committing to a purchase, so you dont find yourself in over your head.
1. What is the Extent of the Repairs?
How much work is really needed to bring the home up to neighborhood standards?
Consider major repairs that might be needed, such as:
* A new roof
* Foundation issues
* Plumbing problems
* Electrical issues
These have the potential to drive up renovation costs significantly. If the home is simply in need of new appliances, flooring and paint, the opportunity will be far more profitable.
2. Which Repairs Can You Realistically Do Yourself?
Youre ambitious, sure. But its important to be open and honest about which repairs you can realistically do yourself.
If the homes roof needs to be replaced, you cant expect to take on this job yourself unless youre an experienced roofer. Installing new flooring, painting and minor plumbing issues shouldnt be difficult to take on, but major issues will likely need to be repaired by a professional.
3. Do the Costs Outweigh the Benefits?
This goes back to the first point: how much work do you need to put into the property?
If a home needs a lot of work, the cost may outweigh the benefits. When all is said and done, you want your renovations to add value to your home enough value that youre getting a decent return on your investment.
This is why its so important to work with a contractor you can trust. If you have an accurate estimate of renovation costs, you can compare them to the market value of similar homes and determine whether its worth it.
4. Have You Found a Good Home Inspector?
A good home inspector can be your greatest ally when buying a fixer-upper. Experts recommend asking for an inspector that has experience in homes that are the same age as the home youre considering. Theyll be realistic about which areas of the home are truly in need of repairs.
Also, be sure to find an independent inspector. Avoid using inspectors that your real estate agent recommends they wont have your best interests in mind. Remember, the real estate agents job is to sell the property. The last thing they want is for the inspector to find all kinds of things wrong with the home.
A home that needs renovation can be a prime investment opportunity. If you know what to look for and are realistic about the costs, these types of properties can prove to be lucrative opportunities.