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Buying a fixer-upper can be a smart choice for homebuyers who are looking for a deal. With low housing inventories in many areas around the country, it can help you reduce upfront costs and stay within your budget. But before you make an offer on a home that needs work, there are important things you should keep in mind. You must have a good sense of what improvements and updates you want to make in both the short term and long term. If you don’t do your homework, you may end up with a serious case of buyer’s remorse.
Here are eight important things to do before you buy that fixer-upper:
1. Consult an expert. If you know you want to make major improvements soon after you move into the home, have a general contractor determine the associated costs. Knocking down walls and changing the structure of the inside of the home can be expensive. You don’t want to buy a property and quickly come to the realization that you can’t afford the renovations that you have prioritized.
2. Find a great home inspector. Make sure you have a respected, experienced home inspector who can identify hidden problems that you didn’t factor into your decision-making process. It could be an old furnace that has seen better days, serious plumbing problems or cracks in the foundation. These aren’t optional repair costs. In some cases, they will have to be addressed immediately to make the house livable. To protect yourself, ask for a pre-offer inspection.
3. Work with an experienced real estate agent. It is a big advantage to work with an experienced agent who will provide an honest assessment of the pros and cons of buying a specific property that needs a lot of work. An agent who has an intimate knowledge of the neighborhood can give you a good idea about the likely appreciation in the value of the home.
4. Don’t ignore other financial responsibilities. It’s important to know your cost of living. Go over credit card bills and bank statements for the 12 months to get a true sense of what you are spending on average every month. Also, you have to consider future costs. For example, if you have children and would like to have them attend private schools, that can obviously be a pricey budget item to plan ahead for.
5. Factor in how long you will live in the house. If you plan on staying in the home for less than three to four years, it will most likely not be cost-effective to make expensive renovations. You would probably be better off to continue your search. It can be frustrating if you’ve been trying to find the right home for an extended period of time, but you can’t let your emotions get in the way of making an informed and practical decision.
6. Learn your financing options. You can take out renovation loans that enable you to spread out the costs you’ll incur when making improvements to the property. You can make payments over a longer period of time, which can help you avoid having to dip into your retirement accounts. The last thing you want to do is mortgage your future by overextending yourself to cover your monthly costs.
7. Evaluate the location. The market value of a home is heavily impacted by the quality of the neighborhood. If it’s a sought-after area, that’s a big plus. Home prices are more likely to go up over time. Take the time to research the recent comparable sales (comps) over the last several years to get an accurate read of the market.
8. Consider the convenience: Evaluate your current living situation. If you don’t live close to your workplace and have to endure long, traffic-filled commutes to work, that can take a toll on you over time. If the home is near your job, that can save you time and frustration. And if the home is near public transportation, you can avoid having to pay for gas and parking.
Buying a fixer-upper isn’t for everyone, but it comes with many benefits. You may find yourself able to put your personal touch on improvements and realize the American Dream of homeownership without exhausting your assets before moving into the home.