There is always a certain percentage of the home buying population that is enamored with buying a fixer upper.
And, more recently, with the proliferation of “Reality TV” glamorizing the fixer upper it has become more popular with both first time home buyers and move up buyers alike.
But before you run off and buy a house that needs a ton of work there are a few things you need to think about especially if you are buying a fixer upper to save money.
What Is Your Motivation To Buy a Fixer Upper
Your motivation of why you are buying a fixer upper will have a lot to do with whether it is worth it or not.
Buy A Fixer Upper To Save Money
Many envision buying a fixer upper to save money. Buying a fixer upper solely to save money can go either way.
If you are buying a fixer upper primarily to buy a cheap house, you can be in for a rough road. In general you get what you pay for. A fixer upper is cheaper because it is lacking the fit and finish and the repairs a more expensive home already has had completed.
Often it is less money to buy a home completed than it is to buy a home that needs work where you are going to complete the repairs and updating.
If you are buying a fixer upper just to save money, think again. It may actually cost you much more in the long run, then spending more money on a house up front.
For example, RIS Media reports in its 2019 Cost vs Value article an average minor kitchen remodel costs $22,5000 with a return on investment of 80.5%. RIS Media also shows a vinyl siding job has a retun on investment of only 75.6%
So buying a fixer upper to save money, is it worth it? If your budget can afford a more expensive home, a better value is a home that has been recently renovated with all the repairs and upgrades taking the initial hit in loss of value.
Buy A Fixer Upper So You Can Make It Just So
Other buyers consider a fixer upper because they are going to spend a lot of money making a home just the way they want it and they do not want to pay for renovations they are just going to rip out.
In this case saving money is less of a concern where getting exactly what you want is the priority. While money is important, saving every dollar is is not the priority.
Saving Money By Buying A Fixer Upper
If you are paying retail for most of the renovations, you will be hard pressed to save money on a fixer upper. Contractors have a fairly sizeable profit built in as well as you are paying for labor.
Where you can really save money is when you can handle much of the work yourself and only hire contractors as needed.
It is important to assess your skills and only tackle the work you can handle in a professional manner. Shoddy workmanship will only haunt you down the road, especially on resale.
Where You Can Save Money With A Fixer Upper
Not everyone has the skills to do all the work on a home that needs work. So where can you save money when renovating a fixer upper?
Before putting an offer on a fixer upper prepare a budget after assessing all the work that needs to be done. The biggest mistake a buyer can make is underestimating the amount of work that needs to be done. And, don’t forget to plan for the unseen.
Unfortunately “reality” fix and flip shows has everyone believing moving walls, adding doorways etc… is no big deal. When in reality it adds significant costs to a renovation.
Accurately estimating your renovation budget is key in making your fixer upper a home you want to live in as well as a financial success.
Buy It Right
Once you get a good budget on fixing up a home, the next step is to buy it right.
Financially your fixer upper purchase is a success if you can buy the house for the full renovation value minus the cost of renovations or less.
Here in New England, homes are seeing heavy buyer competition, even the fixer uppers. So it is key to set an accurate budget. Overestimating repairs will lead to a lot of offers and no house.
Recently in Melrose MA a fixer upper came on for under $300k. There were 90 offers on the home. So there is a balance between getting the home for the right price and sharpening your pencil and accurately preparing a reno budget to get the home you want.
Low balling an offer and over estimating repairs will just lead to a lot of work that has no results.
Don’t Be Afraid To Walk Away
You may love the house and you see potential. But, if the numbers don’t work be prepared to walk away. Between putting in an offer and your home inspection you should have time to do your due diligence and make sure the home plus anticipated fixes and renovations make sense.
Also make sure your contract has a good home inspection contingency letting you back away for any reason.
Contract The Work Yourself
Instead of hiring a general contractor to complete a job from start to finish, consider contracting the work yourself.
You be in charge of lining up and scheduling the appropriate contractors in between doing the work you can do on your own.
Many builders may not even touch a job themselves and hire others to do all or most of the the work. But you pay a premium for them to coordinate and schedule the work when you may be able to do that yourself and save some money.
Do The Demolition Yourself
When starting a kitchen or bath remodel or maybe replacing a deck, the old fixtures need to be removed chopped up and hauled away. Doing the demolition before starting a renovation project is usually more brawn then brains.
If you can tackle the demolition your self you can save 100’s if not 1000’s of dollars on your renovations projects.
Shop And Buy The Materials Yourself
Contractors buy their materials from where it is quick and easy. On top of it they mark up the materials to pay for the time and effort to order and get the materials to your house.
If you provide the materials for a job yourself, you have the ability to shop and get the best price as well as save the mark up a contractor has on materials and possibly delivery costs.
Do Some Of The Work Yourself
During a renovation maybe you are comfortable doing much of the work yourself and leave certain parts to the professionals. The more work you can do yourself, the more money will be saved.
Years ago, I did a bathroom remodel. I had quotes of $15-20k to have the project handled by a contractor.
I decided to do much of the work myself. I demolished the bathroom, did all of the framing, installed all of the blue board and cement board, installed wainscoating and the flooring, hooked up all the fixtures and painted myself.
But, I decided to have professional handle the plumbing and electrical rough in. All in all, I completed the project for less than $6,000 dollars, including paying the electrician and plumber.
I just recently completed a simple bathroom paint job with some new fixtures. It was fresh paint and change of fixtures.
Much of the work of the paint job was removing and reinstalling switch plates, door stops, toilet paper holder, the toilet, light fixtures etc…. The rest of the time was spent filling imperfections and sanding the walls. Very little time was spent on the actual painting.
Point being even if you didn’t feel competent painting and hired a professional you could save a ton of money by stripping the bathroom of all the fixtures and putting back yourself. Why pay a painter an hourly wage to do something you can do.
Learn To Paint Like A Pro
Doing a quality paint job is definitely in reach of almost every home owner. But take the time to learn how. A quality paint job is more about proper preparation than actual technique.
Painting a small room, including primer, primary color, ceilings, trim and doors can easily cost you between $800-1600 if you hire a professional.
You can tackle a small paint job yourself for $150-200 yourself saving you a ton of money.
Plan For Smart Renovations
Whether your home is a forever home or one you may only be in before moving up, bear in mind life changes quickly. Maybe a job transfer, growing family, family moving in, etc…. is making you sell your renovated fixer upper before you originally thought you had to.
It is wise to always keep renovations in check with the price of the home and the surrounding neighborhood so you can get all or most of your money out if you should have to sell.
Don’t go overboard on finishes and amenities that are not appropriate for a house in your price range or neighborhood.
For example I recently had a home for sale in Andover MA where the seller did over a $100,000 dollars building a massive deck and patio work outside. The home was under 600k.
They were sorely disappointed they could not capture anywhere near what they spent on there outdoor living space just a few years ago. It was pennies on the dollar.
Over improvement is one of the biggest mistakes a home seller can make when pricing their home. They think they can capture a 100% or more of any improvements they make on their home. Where in fact very few repairs or renovations recoup a 100% of their value.
Financing Your Fixer Upper
Often cash strapped buyers looking at fixer uppers fail to look forward and see where the cash is going to come from to fund their renovations.
You take all your money for a small down payment and closing costs to buy a house. Now you have to replace the furnace and the roof immediately, to the tune of $14,000. Where is that money going to come from?
Or how about funding the 35,000 kitchen remodel.
Consider an FHA 203k Rehab loan to fund any must do repairs or renovations. An FHA 203k loan will allow you purchase a home and borrow extra money for repairs and renovations using the repaired value as the appraised value. The great part is you can still use put low money down and get some funds to work on your fixer upper.
So Does Buying A Fixer Upper Save Money?
There are certainly many variables that go into the question of whether a fixer upper will save you money. So the answer is maybe.
If you are buying a fixer upper soley because you think you are saving money, think again. If you have the ability to spend $60-80k more, you may find it cheaper to buy another home already fixed up the way you like.
On the other hand, if you are handy and you can do much of the work yourself over time, there is potential to save some money AND get things fixed up just the way you want.
Just because a house is cheap doesn’t mean its cheap. Do your numbers and make sure it makes sense.
Other Renovation Resources:
- Xavier De Buck Are You Addicted To Home Renovations
- John Cunningham Kitchen Renovations That Make Financial Sense
- Bill Gassett Will A Finished Basement Add Value?
- Anita Clark Renovation Mistakes To Avoid
This article, How To Make More Affordable Housing In Massachusetts, was provided by Kevin Vitali of EXIT Group One Real Estate. I have helped 100’s of home buyers over the years and am confident my experience and skills can make purchasing your next home a pleasant experience. Please feel free to reach me at 978-360-0422 to discuss your upcoming purchase.