Whether you’re looking to buy a house to flip for profit or want to save a little money on a personal home project, there are many things to consider when buying a “fixer-upper”.
Experts recommend trying to avoid homes that need major renovations or structural changes as your first project, as these homes have a tendency to grow much larger than most people anticipate. Also, once you start digging into the bones of the house you could find the project snowballing into larger problems. You don’t want to get caught throwing good money after bad. Instead, look for homes needing some sprucing up with cosmetic changes. These are much easier to budget for and much of the work can be self-done, depending on your skillset. Additionally, cosmetic changes generally have a better return on investment.
When assessing a property for purchase you’ll want to bring along an expert, home inspector or real estate agent, to give you a thorough estimate of the property’s value and condition. The inspector can help you understand how much work will be necessary and find any structural problems you may want to avoid, and the real estate agent will assist in valuing the neighborhood, so you don’t end up overpricing the market. You don’t want to purchase a $300,000 home that needs $100,000 worth of work in a $300,000 neighborhood.
In Northern Virginia even fixer-uppers are in demand so don’t assume you’ll have your pick of properties, you will most likely have to compete for what you want. And, because of the hot market, you’ll want to have your renovation estimates done before making any offers as sellers may not accept any inspection contingencies. But, be careful the competition doesn’t force you into a financially bad situation.
When determining your offering price, you’ll want to estimate all labor and material costs for the renovation. Experts recommend estimating on the high side with an additional 5 to 10 percent for unforeseen problems and factoring this into the home’s future estimated value. You’ll also want to factor in the extra time unforeseen problems will take. Time is money!
Here's another side note on using contractors to renovate your "potential palace."
In talks of finances, depending on the condition of the property you may run into difficulty securing a loan. You also may not be able secure a loan for the renovation costs. There are a few government mortgage programs for renovation properties, so do your homework and have your financing lined up in advance. Or, if at all possible, remember, Cash is King.
Buying a fixer-upper is a great way to save money on a home purchase and the rewards can be significant. Buy wisely, buy cautiously and use the advice of experts to guide you and your decision. And, as always, I am here to help you along the “fixer-upper” journey.
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