Buying a Fixer Upper? How to Choose One That Won't Break Your Budget
The cost of buying a home today is rising, making home ownership more difficult to achieve. In fact, for many Americans, the home they purchase to live in will likely be the biggest financial investment they will ever make. In an effort to succeed in becoming a homeowner, more buyers are choosing to look at homes that have lower asking prices due to some type of condition or repair issue.
Before signing a purchase offer on one of these "fixer upper" homes, however, buyers should strive to make sure the one they have selected will be affordable for them to repair within the confines of their existing budget.
Start with a professional inspection
Home inspections performed by a certified, reputable home inspector are a wise choice in any home purchase, but when considering the purchase of a fixer upper, the inspection is essential for making a wise choice. When hiring the home inspector, prospective buyers should take time to discuss their concerns about the home and ask the inspector to carefully detail any findings that will likely be expensive to repair.
While home inspectors cannot offer opinions regarding the actual costs of the repairs or renovations, they will be able to use their experience to help the buyer understand why certain issues, such as structural problems, might be prohibitively costly to repair.
Once the inspector has completed their inspection and issued a report of their findings, buyers should consider getting repair quotes from local contractors before proceeding with further negotiations or agreeing to buy the home. Their real estate professional can assist them with referrals to experienced contractors with excellent references from satisfied clients.
Investigate the home's history
In addition to the home inspection, prospective buyers can find helpful information by searching public records involving the home. A local planning and zoning board can usually provide copies of any existing building permits, code violations, and other information assigned to the home's address that can yield clues regarding past repairs and maintenance.
If a previous homeowner chose to bypass the permit process, any improvements made without permits may not count toward the value of the home and in some cases, may even have to be torn down and rebuilt in order to comply with local codes and regulations.
Determine how the necessary renovations will fit into the neighborhood
Another important factor to consider when purchasing a home that will need significant improvements is how that home will fit into the neighborhood after the work is done. An average homeowners moves every 13 years, so any home purchased will likely need to be sold at some point. If the neighborhood is declining, spending thousands of dollars to renovate a home may mean taking a loss on it during a future sale. To avoid over improving for the neighborhood, prospective buyers should look closely at the following numbers:
- the final purchase price for the home as a fixer upper
- the total cost of renovating the home to move-in condition
- the current average home value in the immediate neighborhood
- the expected home price trends for the area
Purchases where the final purchase price plus the cost of repairs remain within the same range as the current average home values in the neighborhood will be the most cost effective to buy, repair, live in, and eventually sell.
To get current, reliable information about home values in a particular area, as well as expected market trends, prospective buyers can ask their real estate professional to provide a comprehensive comparative market analysis. A CMA will also yield helpful information about other homes in the neighborhood, such as square footage and the number of bedrooms and bathrooms. Buyers can use this information to help ensure they do not over-improve their fixer-upper home during the renovations.