Top Tips for Buying a Home That Needs Work
With a fixer-upper, you can customize the home to meet your design style and your functionality needs. Pairing this flexibility with a low listing price makes homes that need work very appealing to many buyers. These tips can help you figure out how to find the right fixer-upper for you.
Don’t Pass on a Small Home
If a house has a solid foundation and is in a great neighborhood, then don’t pass on it just because it’s a little smaller than you wanted. After all, you can always build an addition to increase the square footage or add a garage or other external structure. This extra space will allow to keep clutter out of the main house, as well as provide protection for your vehicle, lawn equipment, sporting goods, and other items. When constructing an outbuilding, shop, or other external structure, try to use steel rather than wood. While wood is beautiful, it is also prone to termites, as well as water and mold damage. Steel, on the other hand, can withstand heavy winds, earthquakes, fire, and pests better than wood. Some architects also prefer steel to wood because it can span greater distances, opening up more design possibilities.
Make the Right Offer
Take a look at comparable sales in the area on homes of relatively the same age, square footage, and other characteristics. Your offer should be based on these comps minus the cost of the work that needs to be done. Get a reputable, licensed contractor to walk through the home and provide written estimates for the necessary work before making any type of offer. Add a 15 to 20 percent contingency for unexpected expenses on top of their original estimate. Also, remember that permits can be expensive, so factor that into your offer as well. And if the home has been on the market longer than the average sale time, or if you can make an all-cash sale, you might be able to come in with a lower offer.
Keep in mind that traditional mortgages don’t allow you to finance the cost of renovations on top of the cost of the home. Therefore, you’ll need to have money available for your down payment, closing costs, and renovation work. Some buyers choose to get a home improvement line of credit to cover any necessary renovations. Another route is to apply for an FHA 203(k) loan or Fannie Mae HomeStyle loan, which would allow you to combine the cost of the home purchase with the cost of renovations and repairs into a single mortgage.
Be Willing to Get Your Hands Dirty
Although things like plumbing, electrical, and HVAC work should probably be left to the pros, you can do a lot of the renovations yourself. If you don’t have much experience, read websites, watch videos, get advice from the staff at your home improvement store, and know that you might make some mistakes along the way. It’s not that hard to learn how to paint a room, put in a ceiling fan, or lay flooring. Just do research, and remember to take it slowly. You can save a lot of money with DIY work and it can be a whole lot of fun.
If you plan on living in the house, by all means, do whatever home renovations will make you more happy and comfortable. However, if you are going to flip the house, then you should aim toward the biggest bang-for-your-buck upgrades. According to analysis from Zillow, some small changes can make a big impact. For example, the right color front door can yield an extra $6,000 to the seller. Zillow also indicates that a mid-range bathroom model results in a $1.71 increase in home value for every dollar spent, while it’s only $0.87 for an upscale bathroom remodel. And though kitchen renovations seem to attract more buyers, they are one of the worst returns on investment at about $0.50 on the dollar.
Sometimes, you can get an incredible deal on a home that needs work. However, you don’t want to end up with an uninhabitable money pit. With a little research, some DIY work, and the right contractors, you can turn a fixer-upper into the home you’ve always wanted.
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