Should You Buy A Fixer-Upper?
For many buyers, the phrases "handyman's special" or "needs TLC" in a home listing
are synonymous with the term "money pit." But for savvy homebuyers that can see
beyond a home's present condition, a fixer-upper could potentially yield some
profits down the road.
If you've found a home that needs some renovation,
ask yourself these questions before placing a bid:
Is the home worth salvaging?
Most buyers don't hire an inspector until the seller has
accepted their price. But you may want to walk through the house with an
architect or contractor friend. Make sure to browse the neighborhood as well. If
other homes are well kept, or if the neighborhood is experiencing a
revitalization, your chances for long-term profit are better.
What is the home's current and potential value?
First, gather contractor
estimates for all anticipated improvements – new furnace, carpeting, a third
bathroom and tile, for instance. Add those to the home's list price. Then,
compare that figure to other homes of the same size and age in the neighborhood.
If your prospective home is listed at, say, $125,000, but comparable homes are
selling for $175,000, and you don't think you'll spend more than $40,000, you
may have found a bargain.
Remember, however, that you can't recoup your
costs on all home improvements. Look for ways to increase the home's living
spaces so you can get the most bang for your buck. And plan on living in the
house for a while so it can naturally appreciate.
How much work really needs to be done?
Cosmetic improvements like new wallpaper and kitchen
cabinets, or structural repairs like a new roof or rewiring are much different
than gutting the entire first floor. Know what you're getting into and how much
mess you can tolerate. If a little drywall dust doesn't bother you, but living
in your basement for six months would, look for a dwelling that needs less
How will I finance the renovations?
If you've mortgaged less than what your home is worth, a home equity loan could pay for
improvements. Low-interest government loans might cover renovation costs as
well. Estimate your monthly costs for the mortgage and other loans, and make
sure you can swing payments for both.
How much work can I do myself?
You may thrill at the idea of nailing shingles on a rooftop or replumbing the bathroom. On the other hand, if you hire
a handyman whenever your living room needs repainting, factor in labor costs for
even simpler improvements.
As with all investments, those that have the
greatest potential for payoff are also the riskiest. But that's what appeals to
some buyers. A smaller outlay now could yield big rewards later, if you're
willing to take that chance.