How to Know When It’s Worth it to Buy a Fixer-Upper
We’ve all watched those flipping shows, where a burly guy and his beautiful designer spouse buy a dump and turn it into the perfect home. They sell it fast and make a ton of cash. That’s just a TV show, right? Obviously flipping houses does occur, just usually not to that level of success. And yet a lot of people shopping for real estate are looking for a solid home at a decent price that they can put their own sweat and tears into, and add to the value of the property in the process. How do you avoid getting burned financially by buying the wrong house? There is a difference between a fixer-upper and a money-pit. Read on.
A Fixer-Upper is generally a home that’s in a decent location, structurally sound, but needs general maintenance, a lot of cosmetic changes and design improvements. The homeowner can usually reside in the home while the work is being done…so it’s not THAT bad of a place. Many times the projects can be DIY, too. The projects often include:
- Walls – fill holes, repair damaged areas, remove and update wallpaper and paint. The exterior may need some repair and painting as well.
- Floors – refinish hardwood floors, clean or replace carpet and upgrade other flooring materials.
- Lighting – update fixtures throughout the interior and exterior of the home.
- Wood – replace damaged trim, repair doors and cabinets.
- Kitchen and bathroom – new hardware, painting or refinishing cupboards if necessary.
A Money-Pit may appear better on the surface, but is hiding major, expensive flaws or structural issues. It might be located on a busy street corner or a tougher neighborhood. Generally you’ll need to hire a lot of experts to get the place in decent shape, and unless you can purchase the home at a rock-bottom price, the cost to fix all the issues goes well beyond what you’ll ever get back. Issues for a money-pit home include:
- Foundation – issues with rot or a sinking foundation; cracks in the foundation.
- HVAC – the heating or cooling systems are antiquated, broken or need replacing.
- Plumbing, Electrical and Sewer – if any of these systems need an overhaul, plan on having deep pockets.
- Roofing – if there evidence of water damage in the home or problems with an aging or damaged roof, you can expect to spend big bucks for those repairs.
- Windows – if they need replacing, new windows can be an enormous expense.
In order to avoid making the wrong decision, you need to first use a Realtor in your search – they can steer you away from that money-pit house. If you’ve got the itch for home improvements, let your agent direct your search for a home that needs some TLC and then compare it to other potential homes. You may decide that a home without all the needs for improvement is a better value for you.
Also, hire a qualified inspector before you purchase anything, to look at every corner of the home. These trained professionals can see issues that regular people are blind to – and they can also provide some basic input on how big or small a ‘fix’ might be. Based on their report, you can decide what risk you’re willing to take or if you should walk away.
Remember that a fixer-upper is a home that everyone wants when it’s fixed up, but most people can’t see beyond its imperfections to make the purchase themselves. The money-pit house will probably cost you way more than you expect and fall short of your expectations.
The Minnesota Association of REALTORS® is the largest trade association in the state with more than 17,000 members. MNAR is the voice for real estate in Minnesota.