You love older homes. They are full of charm and character, something that most modern homes don’t have. You won’t often find the fun little quirks of older architectural design in a newer home, and for many, that is the draw of buying an older home. However, when you buy an older home you might be looking at taking on some extra work. This is especially true when you decide to buy a home that isn’t move-in ready. You are going to have to do renovations first.
These are fixer upper houses, and they are popular, especially when you love older homes, and having the chance to restore a home to fit your personal style, wants, and needs. But, buying a fixer-upper can be a huge money pit. Before you know it, you’ll have easily spent far behind what you saved buying a fixer upper, and it will start feeling like you should have just purchased a move in ready home. Don’t worry, you can avoid this situation by going into a fixer upper with realistic expectations.
Math: Running the Numbers
You fell in love with the fixer upper. It has all the charm and character that you were looking for, and it seems like the house is priced right. But is it really? Fortunately, figuring out how much you should spend on a fixer upper is a simple numbers game. You are going to want to start with the cost of renovations. Do a thorough walk-through and assessment of the house, preferably with a contractor. Determine the work that needs to be done, the extent of the work, and the cost of all the materials and labor necessary to complete that work.
After you have that number figured out, subtract it from the expected market value of the home after the renovations are all complete. You will draw the expected value from real estate prices in the area, from homes that will be comparable after the renovations are finished. Finally, you may want to deduct around 10 percent, to account for a contingency. With older homes, something will always come up, so you want to be covered. This final number will be your offer.
Now that you’ve found the most that you should offer for your fixer upper, you are going to want to include contingencies in your offer. A home inspection is a must, especially on an older home. And a home inspection is good for at least two reasons: first, it will tell you if the house is a good investment, and second, it will let you just walk away if necessary. More often than not, with fixer uppers, you’ll find that the inspection will land you somewhere in the middle. But, you can use what the inspector finds to have the seller make repairs, or lower the sale price of the home. On the other hand, if the inspection reveals major structural issues, it’s usually best to simply walk away. These repairs are costly, and while they improve the house, they never increase the value, because these kinds of repairs are invisible to future buyers.
Choose Renovations With Returns
To make the best choices with your money, you are going to want to find a fixer upper that requires mostly cosmetic renovations and improvements. Look for paint that needs touched up or updated, floors that need to be refinished, and even drywall that needs to be repaired. These types of improvements cost a lot less than what they return, which means you can increase the value of your home without spending a lot of money. Renovating a kitchen or a bathroom is also a great way to increase your home value beyond what you spent.
You will want to avoid over-improving your home. Fix it up too nice for your neighborhood, and that will hurt your chances of being able to resell the house in the future. It can even hurt the market value if the house doesn’t sell. This is why it’s important to find a fixer upper that is mostly cosmetic upgrades. While some structural repairs are okay, too extensive and they just bleed your money. While all new wiring in a home is great, buyers can’t see that. Instead, they’ll see the kitchen you couldn’t remodel.
Buying a fixer upper is all about knowing the numbers and what you can handle. You need to know exactly what you are getting into before you buy the house. This way, you can know you are able to afford the renovations and improvements, and you can spend your money where it’s needed, and where it will give you the greatest return. So fulfill your dream of buying an older house, just go in with both eyes open and be prepared to do a lot of work.