What to Look for in a Fixer-Upper
The housing market is definitely improving, and many of my friends are looking to purchase a new house. The problem is that in many areas inventory is quite low, and it is getting difficult to snatch a perfect house at a great price. However, if buyers are willing to put in some time and work, they are still able to find fixer-uppers that are worthwhile. Here are some tips on what to look for in a fixer-upper. (See also: 9 Costly Things New Homeowners Don't Prepare For)
Location is extremely important in choosing a house. It is better to buy a fixer-upper in a nice neighborhood rather than a pristine and perfect house in a war zone area riddled with crime. Generally, houses in nicer neighborhoods have greater value to begin with, and whatever improvements you make will give you more return on your money. You should also look at the neighbors' houses on the same street and see how much you need to improve the house to make it fit in.
Age of House
Generally, newer homes have certain features that are more updated. For example, plumbing and electrical systems are usually better, and newer homes are up-to-date with modern building codes. From what I've seen, newer homes also have better insulation and are more energy efficient. These features may not be so visible, but they can be very expensive for you to fix. If you do buy an older home, you should check if these major systems have been updated. If you need to upgrade a house's infrastructure to comply with current laws or insurance requirements, then it can be quite expensive.
Costs and Savings
One reason to buy a fixer-upper is to save a little bit of money. To do that you need to assess how much the repairs will cost and have a reserve fund of cash to pay for those fixes. You should definitely get a professional home inspection and also estimate how much cosmetic repairs would cost. If there are major structural issues that cost tens of thousands of dollars to fix, it may not be worthwhile to purchase the house.
The fixes that get you the most bang for the buck are really the cosmetic ones, and that is why the best fixer-uppers are the ones that have great "guts and bones" but need a fresh coat of paint and some new flooring. The cost of paint and flooring is usually pretty easy to figure out, but major structural changes to the foundation and walls may become a real money pit.
If you want to deal with a fixer-upper, then you really need to figure out how much time you have to devote to it. If you don't do the work yourself, then you will need to research which contractors to use, and for cosmetic changes you will need to pick out all the colors and styles. Depending on how much work there is to be done, it may take weeks to months before you can actually move into the house.
Some people love customizing their homes, but some really just want a move-in-ready house. If you do not have a lot of time to deal with a project, then it might be better to just pay a little more for a pristine house.
While the market is tightening, I think that it is still possible to get a deal on fixer uppers if you are willing to do the research and follow up work. However, it may not be a great idea for those who do not have a decent cash reserve and the time to do the legwork. I've only purchased houses that needed cosmetic fixes, and that is because I don't have a lot of time and money to devote to major fixer uppers.
One last consideration — it is better to get a house at a lower price because your tax basis will be lower, and that may save you money for many years to come.
Have you purchased a fixer upper?