If you cannot afford to buy a turn-key home, or if you’re someone who enjoys taking on a project, you may want to consider purchasing a “fixer-upper” property. Buying and renovating a home that needs significant work may seem like an overwhelming undertaking, but it’s a solid investment. Once you’ve put the work in to greatly increase the property’s value, you can either flip it for a profit or live in it and enjoy the fruits of your labor.
In this article, we’ll outline everything you need to know about buying fixer-upper homes and how you can maximize your investment.
What is a Fixer-Upper Home?
In real estate, a fixer-upper home refers to a worn-down house that needs significant repairs, renovations, redesigning, or reconstruction. More often than not, fixer-upper homes will need more cosmetic repairs than structural ones. Depending on the house’s condition, some fixer-uppers can be suitable to live in, while others may be untenable until certain repairs are performed.
Some people may prefer buying fixer-upper homes for the purpose of flipping them. Through this process, the new owner would buy the run-down property, put the money in to renovate and redesign it, and then resell it at a higher price to earn a profit. House flipping can definitely be a lucrative endeavor, but only if you know what you’re doing. So, let’s dive in.
Choosing the Best Fixer-Uppers to Invest in
When you purchase a fixer-upper with the intention of flipping it, you may assume that any property will do since you’re going to be redesigning it anyway. This would be your first mistake. Every property, no matter how bad of shape it’s in, has a different future resale potential. If you’re taking out a construction funding for this project, you’ll want to make sure that you’re investing in properties that will give you the highest return.
Here are three important factors to consider when shopping for a fixer-upper.
Location is always the most important factor that affects the value of a real estate investment. If you’re going to purchase a property and put the money in to renovate it, you’ll want to make sure it’s in a desirable location that people want to buy in. The more attractive an area is to perspective buyers, the greater demand there will be for the property you just renovated. The greater the demand, the more power you will have to ask for a higher price when you’re ready to resell.
How can you evaluate the value of a given area? Ask yourself these questions: Is it in a good school district? Is the neighborhood safe? Is there a town center with amenities like shops and restaurants? If so, how far is it from the house in question? In general, homes located near town centers and within good school districts are considered high value. The lower the crime rate a town or city has, the better.
You should also look at the immediate neighborhood a house is in. Are the other surrounding houses well-maintained? Would you want to live there? A good strategy is to buy fixer-upper homes in up-and-coming neighborhoods because that gives you more room to renegotiate the asking price. You can renovate the property and hold on to it until you see the community really establish and then resell it for an even higher return.
Home Configuration and Layout
A house’s configuration is important to consider when choosing the best fixer-upper homes to invest in. Homes with more than one bedroom will have greater value, and homes with three bedrooms or more are ideal for families.
The layout of a home is also important to consider. Moving walls is most likely financially impractical, so you’ll want to look for houses with a good floor plan. It’s important that you think about your potential buyer. For example, buyers with young children may be turned off by a house that has bedrooms on opposite sides of the home, or if the master is on a separate floor from the other bedrooms. Bedrooms that are all on the same floor are typically more desirable as is a kitchen with multiple entryways.
Ideally, when it comes to buying fixer-upper homes, you should pick houses with a solid structural foundation. Structural or foundation repairs are more expensive than cosmetic ones, so if you can find a house that only requires cosmetic repairs, it will be easier on your wallet.
Foundation repairs for homes refer to damages that can endanger the lives of the people living inside the home, and as such, are more expensive to repair. Unless you have a big budget, you should try to avoid purchasing a fixer-upper that needs foundation repairs, such as:
- HVAC replacement
- Electrical rewiring
- New plumbing
Cosmetic repairs are more minor and entail damages that don’t endanger the lives of the people living inside the home. They are typically easier and less expensive to fix. Some examples of these include:
- Torn wallpapers
- Peeling paints
- Floors that need refurbishing
- Broken light fixtures
- Broken windows
- Outdated kitchen cabinets
All that said, homes with foundational problems that need more work will likely have a lower asking price than those that just need cosmetic repairs. It’s important that you understand what the necessary repairs would cost and see what makes the most sense for your budget. If you’re new to house flipping, you can consult a contractor to examine the home in question and give you an estimate.
How to Find a Fixer-Upper
There are a lot of ways to find a fixer-upper home. If you’re relatively new to it, and are wondering how you can fund one, here are four ideas:
The easiest way to search for fixer-upper homes is to drive around neighborhoods you’d like to purchase a house in and see what is available. Look for places that are abandoned or unoccupied. It’s typically easy to spot these types of homes because they will stand out against the rest of the neighborhood’s well-maintained houses.
Among the tell-tale signs of abandoned or unoccupied homes include:
- Neglected lawns
- Peeled off exterior paint
- Uncollected mails and newspapers
- Unruly porch
- Broken windows
Once you spot a home with two or more of the signs listed above, you can ask around and find the owner to try and negotiate a deal.
Foreclosure auction events are filled with homes that were repossessed by banks. Many of these properties often appear unmaintained and undesirable, but can easily be restored with a little TLC. Foreclosure auctions also allow you access to a lot of different kinds of fixer-upper homes, so you can consider the factors listed above for each to see which would be the best investment for you.
There are certain downsides to buying fixer-uppers in auctions. Bidding wars can drive up prices and you could end up going over your budget for the purchase price. This would leave you with a smaller renovation budget. Auctions sometimes require buyers to pay in cash so you may need to have all the money upfront.
Look Through Unpaid Property Tax Records
Property tax, whether paid or not, is a matter of public record. You can find a list of properties with unpaid taxes online through their county record portals. Although a delinquent property tax doesn’t show that the home is a fixer-upper, it’s a sign that the property owner is having financial troubles. This, in turn, could mean that they’re having trouble keeping up with home maintenance.
Work with Real Estate Agents
Real estate agents are great professional resources to advise you through the process of purchasing a fixer-upper home. Some agents actually specialize in fixer-uppers and will certainly have the knowledge to help you evaluate which properties make for good investments and which do not. Plus, working with a real estate agent gives you access to the Multiple Listing Services (MLS), which is an online database containing the listing of all the houses for sale in the U.S. real estate market.
There is a lot that you need to know when it comes to buying real estate fixer-uppers. Where and how to find them, what to look for when evaluating their potential resale value, and what the costs associated with renovations typically looks like. If you’re just starting out, it’s advisable to seek the help of professionals like real estate agents and contractors. If you decide to pursue house flipping as a continued source of income, you’ll continue to become more knowledgeable on the process as you work through more projects.