Buying a fixer-upper home has so many benefits — you’ll get to customize it to your liking, the selling price is often attractive and you may encounter less competition for your bid.
Plus, who doesn’t want to hurl a sledgehammer into some ugly kitchen cabinets?
But before you start swinging, understand what a renovation will mean for your finances. Ask yourself these five questions before you make your offer.
HOW BADLY DO I WANT TO LIVE HERE?
In a competitive market, buyers may get so excited at the thought of being able to afford a home that they compromise on too many of the qualities they really want. “I always look at the layout and the lot size,” says Sam DeBianchi, founder of DeBianchi Real Estate in Miami. “I like to know what the possibilities are. Can I build out the house a little bit more if I need to?”
And as with all real estate transactions, location is key. Even if you’re not renovating with an eye for resale, choosing a desirable neighborhood is smart. That way if your plans change and you need to move sooner than expected, you’re likely to get more from your investment.
CAN WE AFFORD THE WORK THIS HOUSE NEEDS?
Even with rising home prices, fixer-uppers will typically sell for less than turnkey properties. However, if you’re purchasing the property with plans to make immediate improvements, you need to factor that into your budget.
“First-time home buyers tend to underestimate just how many projects they’re going to have to tackle, especially in that first year,” says Dan DiClerico, a home expert with HomeAdvisor. “And they underestimate the costs involved with all of those projects.”
First-time homebuyers spend an average of nearly $34,000 on renovations after purchase, according to a 2016 study by Houzz. That can be a hefty cost to bear if you’ve already stretched your budget on your down payment, closing costs and things like new furniture and movers. It can also provide temptation to dip into an emergency fund or take on debt, which isn’t ideal.
IS THE PROPERTY LIVABLE RIGHT NOW?
There’s a big difference between a property with ‘80s bathroom tiles and one that needs serious structural work.
Because the work on the former is cosmetic, you can move in and make the improvements — however inconvenient — after proper planning, prep and budgeting. But in the latter case, you need to perform the work before moving in, meaning you may end up carrying two properties financially (your current home as well as the one you’re renovating) and face far more pressure to get the work finished quickly.
AM I BEING REALISTIC ABOUT WHAT I CAN DIY?
As much as we like to think we’re the next Chip or Joanna, watching home makeover shows is much different from living them. Even if you’re handy, the scope of work required for large-scale renovations may require more time and money to do on your own than you realize. Consider the cost of specialized equipment and materials, and the amount of time it will take to complete the project.
“You may end up spending even more money if you make an error,” DeBianchi says. “Then you end up spending time and money going back and forth trying to fix it.”
WHAT DO THE EXPERTS THINK?
If you know that you’re going to hire professionals to do work on a property, see if you can bring them in to take a look at the project before you make an offer. A trusted contractor can give you a sense of what it will truly take to transform a home, along with a price estimate. If you need specialists, like a roofer or a structural engineer, it’s a good idea to include them as well.