Home buyers especially first time home buyers, love a deal. Of course, doesn’t everyone?!! It goes with out saying that we all want to make the most of our home purchase and there is nothing wrong with that.
I just got off the phone with a first time home buyer. They were all excited about a home I have listed for sale. It is a lot of home for the money, but it is priced the way it is for a reason. It needs work, a lot of work. Some of the work that needs to be done and is not work that can be put off much longer, with out creating more damage to the home.
This first time home buyer is thinking I will buy it and fix it up. Great thinking but we are talking about a buyer who is well qualified for the mortgage but is putting down a very minimal down payment and does not have a lot of funds above and beyond the purchase to spend on fixing up the home.
The “I will just fix it up” Trap
The “trap” being that you will buy the home and just fix it up. This is not unusual for many home buyers, especially first time home buyers, to think this way. I have seen buyer after buyer fall into this trap. Now some people either have the income to support thinking like that or have the funds available to do the work, but many don’t especially first time home buyers just entering the market with limited funds.
So if you start feeling, Ill buy the house that needs a lot of work, then consider the following. Break down the work that needs to be done into… I have to do immediately, I have to do with in the next year or two, or work that is not an absolute necessity.
Ok, so you know you need a new roof and a new furnace in the next 0-4 months. You are talking around $10,000 – $12,000. Where will that money come from? or you have a home with a severely outdated kitchen and bath, which could cost you between $12-20,000 just to spruce up with out even a full remodel. Where will that money come from? Do you have 100’s even an extra thousand dollars to spend or save a month? For many that is not the case. Are you handy and are you able to do a professional job for just materials? Be realistic about your situation and your abilities so not to be disappointed later on.
Fact: It is cheaper to buy a home that is closer to the condition you would like, than it is to buy a home and pay to have the work done.
Most buyer’s think they are saving money by buying a house that needs the work and doing the work after they purchase the home. If that is your motive think again! Now we are not talking just cleaning and painting. Cleaning and painting is a DIYer project that can have huge returns can be done relatively inexpensively and most homeowners have the ability to tackle.
These figures were taken from a Cost vs Value Report for 2011-12 from Remodeling Magazine. A moderate kitchen sprucing up will only recoup 72.1% of the money spent the day it is done! A bathroom remodel will only recoup 66.8% of the project cost.
Here are some other figures to chew on. A 10×12 deck that needs to be replaced would cost between $1400-1800 for pressure treated wood. That is material alone and does not include labor for you DIYer’s. If you had to hire someone, your looking at least doubling that figure. Refinishing hardwood floors run between $1.50 to $2.00 a square foot assuming there is no prep work to be done. So 800 square feet, say the downstairs of a smaller home could run $1600 just to refinish. A 12×12 bedroom that needs carpet, would run about $23-24 a yard (for a cheaper to very moderate carpet installation) costing you $368.
If funds are limited and you don’t have thousands of dollars to throw at project over several months maybe you should reconsider and try to find a home where a majority of the work has already been done and you can live with the way it is. It may cost you less in the long run not only in money, but time and aggravation as well.
Benefits of buying a fixer upper
- Lower initial cost.
- You can do the work or have the work done exactly the way you want
Down Side of buying a fixer upper
- Generally cost you more to fix up then buying a “completed” home.
- Have to come up with the money to do the repairs or renovations. If you buy the “completed” home the renovation cost is rolled into the mortgage. Say you are looking at fixer uppers in the 150k range but you can buy a home that does not need major renovations for 200k the extra work is financed by your mortgage. (50k in a mortgage would run about $315 a month more)
So the last question to ask yourself… are you buying the house that needs work to save money, or do you see the potential in the home and you will have the funds to do the work that is needed?
Kevin Vitali has been helping home buyers in the Northeastern, northern Middlesex countyMassachusetts with home buying decisions. If you would like an agent that can guide your through the home buying process with a consultive approach, call Kevin at 978-360-0422.