Should You Buy A Fixer-Upper?

For those that love a good project, the idea of buying a “handyman’s special” can be enticing; there’s the chance to buy a house in a good neighborhood, for far below market value, spend a bit of time and money fixing it up, and in the end you get a house that’s like new and worth much more than you paid. That may sound good, but fixer-upper homes have their share of pitfalls. Here, you’ll learn what it takes to justify the purchase of such a home.

Crunch the Numbers

To determine your budget for a fixer-upper, add up the cost of renovation (based on an assessment of the house’s condition). Subtract that number from the projected market value of the home after the renovation is complete, and deduct a further 5-10% for mishaps and inflation. What’s left over? The price you’ll use as an offer.

Your real estate contract should include an inspection clause; at the minimum, you’ll know whether or not the home is a good investment. If the home has significant structural issues, they’ll likely be so costly to fix that you should avoid the purchase.

Choose Value-Added Improvements

The best fixer-uppers are homes that just need a little sprucing up- repairs to drywall, floor refinishing, paint in a room or two. Improvements like these cost a lot less, and offer a higher return. Other cost-efficient improvements include new doors, siding, shutters and interior lighting fixtures.

In areas where home values are nearing their peak, even a budget-friendly fixer-upper can seem expensive. Larger renovations can take months or years to finish, and if home values drop in the meantime, you could end up losing a lot of money.

Get Ready to Work

No matter the level of renovation required, it’s usually less expensive when you help out. Fixer-uppers are best for the DIY crowd; people who may not be able to afford a house in the area that’s in tip-top shape, but have the skills necessary to make improvements (such as adding Velux windows). If you aren’t handy around the house, be prepared to spend a great deal of time overseeing construction.

Get the Money Together

One of the hardest parts of buying a fixer-upper is finding the money to pay for the remodel. Most people are strapped for cash after a down payment and closing costs, so paying for renovations and things like roofing supplies can cause further financial strain. For smaller projects, credit cards are a good source of financing; or, you could borrow from a life insurance policy or 401k plan.

For more extensive renovations, a home equity line of credit or a mortgage is a better option. HELOCs can be obtained for up to 90% of the equity the homeowner will have after the job is done. HELOCs and mortgages have comparable interest rates, but only the first $100,000 is tax-deductible.

This article was written by Crispin Jones on behalf of Ashbrook Roofing, retailers of velux windows and a range of roofing supplies. Click here to go their site and see their roofing supplies on offer or the velux windows.

Photo: BBM Explorer

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