The market is tough right now if you are looking for a house. All across the country, corporate real estate companies have been dumping billions of dollars into buying "ugly homes" and aspiring real estate flippers have been buying every property that they can get their hands on. Others though, like myself have been holding out and looking for one of those gems that they can afford to purchase and then add updates to so that they can have a fabulous home. This isn't just about making money. When done correctly, investing in a "fixer upper" home can be a great investment in your future too!
Purchasing a home is going to come in various forms depending on the buyer. There are some that need a turnkey home, but this comes at a premium price. Fixer-uppers in an up-and-coming area can be an investment that pays off in a huge way. If you want to move into a home without any projects to do, you should likely opt for a new build. Even seemingly turnkey homes can have hidden problems from the years of being lived in.
Despite the challenges of purchasing a fixer-upper, this is often the only way that some families can afford to buy a home. Unfortunately, it can be very challenging since for instance, in 2022, investors bought a quarter of all homes sold and this drove the sale prices up, along with rents when the properties returned to the market all shiny and new looking.
When you start shopping for a fixer-upper as an investment property, be prepared. It can be an exciting process but you need to know what you're up against ... it is far from an easy process!
Cash Is King - But Be Smart!
Any property that you find on the market that may be below market value because it needs some TLC will go fast. You need to be prepared to move faster. This means that you should be prepared to make a cash offer and that low-ball bids probably aren't going to work.
You should also be sure that you are not paying too much for the home either. Even if you plan to live in the property or rent it out after being completed, making sure you get the property for the right price is essential, so try to avoid bidding wars. You want to make sure that you can still make a profit after completing renovations or get a property that is worth what you paid for it.
Don't Be Afraid Of Doing A Virtual Walkthrough
In our case, we made a cash offer and did everything virtually from nearly 3,000 miles away. Our new home is in Michigan and my wife and I have never actually seen it in person. Thankfully, technology like Zoom and virtual notary services are at a point now where you can do remotely, what might have been impossible just a few years ago.
However, for this to work properly, you need to have a real estate agent that you can trust to be your eyes and ears on the ground. We couldn't have gone through the process without her.
Don't Ignore The Importance Of A Thorough Home Inspection
I hear stories about how many younger investors are afraid of doing a home inspection because they are afraid the seller will pick someone else or just simply refuse to fix anything if it comes up in the home inspection report.
This is ultimately the purpose of the report and you don't want to buy an investment without knowing what you are up against. Even if you are prepared - as we are - to invest significant amounts of money replacing appliances, replacing floors, and other renovations, we needed to know what challenges lay in front of us.
For instance, if our inspector had determined that the wiring was faulty or there were foundation cracks - those fixes could have added tens of thousands of dollars more to our renovation budget. That would have suddenly no longer made the property a solid investment.
Be Prepared To Haul Furniture And Debris Away
Many investment homes will be sold "as is" and ours was too. This means that we have beds, chairs, tables, appliances, lamps, and random items such as a casserole dish that was left in the dishwasher from a previous occupant. All of these items will need to be evaluated and either cleaned or hauled away.
Along with this, if you are doing construction work, you will also be generating large amounts of trash and debris that will also need to be disposed of.
Debris can be a safety hazard to children along with pets. Van’s Hauling in Arizona notes,” Demolition comes with quite a bit of debris that needs to be hauled away for aesthetic and safety reasons. A lack of debris removal can hinder the project from going forward indefinitely in some cases.” Neighbors will also be appreciative of this as clutter can impact the neighborhood’s image negatively.
Dumpster rental could be an option, but for larger debris that will not fit, professional debris removal crews are the best option.
Are You Ready For The Project?
A full-time job does not leave massive amounts of time to handle home improvement projects. You might have two full days a week when you can work but might have other obligations.
Creating a realistic timeline to stick to can help hold yourself to deadlines that you have set. You won’t want to handle a small project after a long week at work, but any progress is a positive step.
The following are areas along with costs to consider:
- Tools, along with home improvement equipment, can be quite costly. Rental equipment can add up quickly if you do not have any equipment of your own.
- You’ll likely have to hire help at some point, as you want to make sure that complicated tasks such as replacing the bathroom are done properly. For instance, tiles can be expensive. Having a pro do a job that you could potentially "do yourself" may seem like an added expense until you consider the costs of water damage, breaking tiles, or having to re-do the project because you didn't do it properly the first time around.
- Purchasing your own materials can help save on costs. For instance, we will likely source our own lighting and appliances. We will also do much of the painting on our own.
Is This A Property That You Can Live In During Construction?
Your family can have a huge decision on the home that you decide to purchase. Your teens might not want contractors in and out of the home as they value their privacy. The family might be a bit more amicable about the move if you show them your vision for the home. A refinished basement can be a great example as this can give a teen a living space they will enjoy. Sharing a room with a younger sibling is the definition of a nightmare for an angsty teenager. A couple without children can brave this challenge together but need to both be steadfast by not allowing projects to be ignored.
In our case, we have no kids and we are delaying our move while construction is completed, so this makes it easier but this is something that each family will need to determine for themselves.
Historical Zoning Restrictions Can Make "Easy Jobs" Impossible
It's important to research any potential fixer-upper before beginning work on them. Some homes may have historical restrictions, zoning regulations, or other limiting factors that may restrict your ability to completely renovate your new home. Be aware of these issues before investing in the property as they can limit options in terms of improving your house.
Are You Prepared For Delays And Unexpected Challenges?
No matter how good your contractor is and how solidly you plan the project roadmap by adding contingencies, things will go wrong and cause delays. These will add extra time as well as money to the project.
Setting a budget before you begin is important - but make sure that you have extra money available so that you don't fail to complete the project.
One of the properties we looked at was clearly a renovation that stalled halfway through. While it was a great opportunity to invest, it wasn't right for us since we were looking for a property that we could live in - not just flip.
You don't want to be that guy. Just imagine how much money and emotional energy you are investing in this process. The last thing you want is to be forced to walk away or fail to bring the project to completion at the level you had hoped to deliver.
Good Communication Is Critical Between You And Your Spouse!
The budget will be a source of discussion and you might even have a few arguments about it. One spouse might want more affordable renovations, while the other wants something fancier or higher quality that costs more. Sometimes it is just a matter of differences of opinion on what type of carpet or flooring is the right choice and that can cause stress if you fail to talk through those things properly.
A home is the largest investment that most individuals make in their lives, so receiving the best ROI possible when sold. Building out a home office can be tax-deductible if you organize the costs of doing so. Improvements that will help future owners save money, like solar panels, are also popular. These panels can last decades and help reduce the electricity bill on a monthly basis.
A fixer-upper can be a huge challenge for everyone involved. Take the time to truly figure out if this is the path that you want to take. The financial potential for a fixer-upper is so great that it could provide financial security years into the future. Improving a home and then allowing it to appreciate in value before selling is always a wise move.