According to a recent StorageCafe.com research, nationwide, fixer-upper homes are typically 32% less expensive than turnkey properties. However, costs greatly vary based on the city or region, like with anything in real estate. For the price of one fixer-upper in San Jose, California, you could get two turnkey homes in Austin, Texas, which require no repairs or improvements.
The study reveals that purchasing a fixer-upper in California will save you more money on a dollar-for-dollar basis. With a house in need of repairs in Los Angeles, you could save $500,000. By choosing a home that could require some work, you could save as much as $450,000 in San Diego and $405,000 in San Francisco.
When, though, is a fixer-upper a good purchase as opposed to a money pit?
Review the “Bones”
Before buying a fixer-upper, you should take into account the home’s sound structural base, modern plumbing and electrical systems, and more recent roof. If necessary, these changes might be difficult and pricey. In the same way, you should check the inner walls for cracks, insect or rodent infestations, and mould problems.
According to Nate Johnson of the real estate search website NeighborWho, “try to avoid properties with underlying structural difficulties, including foundation, plumbing, or electrical issues.” These kinds of problems will need to be fixed, which could result in high repair costs. Johnson claims that they don’t significantly increase resale value.
Good bones are frequently just a sense you receive when you walk through the house, the author observes.
There are some factors you should consider, though. “Good-quality houses typically feature large rooms and high ceilings, which makes them feel airy rather than claustrophobic. A benefit is having large windows that let in lots of natural light. Before looking at houses, it’s crucial to understand the typical construction techniques and materials utilised in your selected investing area, the expert advises.
Get Professional Advice Before Making a Purchase
A professional inspection can help you save time and money when you’re looking at fixer-upper homes and prevent you from making a poor choice. Johnson continues, “I advise walking through the property with an expert house inspector, especially one that is knowledgeable about construction methods for your market.
You might believe that collecting repair quotes should wait until after the sale has been finalised. But before making an offer, Chris Jones, a real estate agent with Key Realty Columbus and the proprietor of CMJones Homes, LLC, advises going to the house with a general contractor.
Give a thorough explanation of what you need and request a proposal or estimate that breaks down the various line items, advises Jones. If you don’t want to handle any of the work yourself, this will give you an indication of the repair prices you might anticipate to pay. However, it’s a good idea to have your estimates of repairs on the high end to start. You can always do some of the work yourself and hire a contractor to do the stuff you don’t want to.
Determine the resale value and repair costs (Conservatively)
When you have your estimates, you should conduct the calculations to see if the house is a good deal. According to Jones, many real estate investors and house flippers try to keep their overall expenses under 70% of the home’s after-repair worth.
He gives the example of a house that, after extensive repairs, would be worth $100,000. According to him, “the overall cost of the rehab, which includes the purchase price, repair expenditures, and holding fees, shouldn’t exceed $70,000.” You would make a profit of $30,000 if you opted to sell the house or even perform a cash-out refinance based on its appraised worth following renovation.
Jones advises talking to neighbourhood real estate agents, perusing websites like Zillow to discover how recently comparable homes in the neighbourhood have sold, and attending open houses for turnkey properties nearby to estimate the home’s market worth after renovations. Given how quickly the property market is evolving, Jones advocates being conservative in your final value estimates.
Naturally, profit margins may not be as crucial for a house you intend to live in, but you still want to be sure that buying a fixer-upper will save you money. Otherwise, it might be easier to just buy a turnkey house rather than going through the hassle of repairs.
Avoid These Warning Signs
According to Jones, most buyers could be put off by significant structural repairs, especially if they would cause a delay in their ability to move into the property.
“Structural or foundation repairs, soil grading, roofing, rerunning utilities, septic systems, complete interior structure rehab, etc. are usually considered heavy repairs. To fix items in this category, larger crews with heavy equipment are needed. Depending on the extent, he predicts that the expenditures for a project of this nature could go beyond $50,000.
The investment might be worthwhile in a place like California, where fixer-uppers are selling for hundreds of thousands less than comparable turnkey properties. But it’s usually wise to stay away from markets with lower prices.
Age Issues
Naturally, older homes tend to require more extensive major structural repairs or changes to their mechanical systems than do modern ones. Fixer-uppers fall into two types, according to Lukasz Kukwa, a real estate counsellor in New Jersey: pre-war (constructed before 1940) and post-war (built between 1940 and 1960 or later).
Pre-war homes may have a lower selling price, but they will require more labour and investment to bring the structural components up to modern norms and codes, according to Kukwa.
He observes that pre-war dwellings were built differently, not simply in terms of the materials used, but also in terms of how they were laid out. “At that time, the home’s purpose and function generally were different. Without taking into account the home’s flow, remodelling or altering an original layout typically results in a room that is claustrophobic and useless in today’s world, the architect claims.
He suggests examining the home’s footprint to see whether the interior layout may be changed to enhance the overall functionality of the building.
It can be a financially and emotionally satisfying job to renovate a pre-war residence to meet current standards if you have the opportunity to do so. It can, however, also be a huge task.
the most value can be added by cosmetic repairs
Small cosmetic improvements can add the most value to your home, both as an investment and as a location where you want to spend your time, in addition to making sure the house has a good, functional plan and there are no significant structural or mechanical difficulties.
The finest fixer-uppers, according to Johnson, are those that primarily require aesthetic improvements like cabinet refinishing, siding repairs, or wallpaper removal. He says that he typically seeks for real estate with “great exterior curb appeal and outmoded inside architecture” for investment purposes.
Jones concurred that cosmetic improvements like new carpeting and flooring, outlet covers, paint, and trim can sometimes be made for less than $10,000 while still improving the appearance of a property both now and in the future.
Location, Location, Location
Location is important for fixer-uppers, according to Johnson. A house on a busy street next to a sewage facility won’t be desirable even with a fresh coat of paint and hardwood floors. Finding a run-down house in a desirable community that can be brought up to code is the key.
After accounting for expenses, he says, “You probably shouldn’t buy the house if you’re spending more than you can anticipate to recoup when you sell it.”
