“Buy the worst house on the best block.”
This adage has been used time and again by real estate investors who advocate that the purchase of a house in need of renovations in a desirable neighbourhood is a surefire way to maximize your return on investment. In fact, renovating fixer-uppers and selling them at a profit is how many real estate investors have made their millions, and it has inspired many HGTV shows.
But is buying a fixer-upper the right choice for you?
Taking on a home in need of renovations isn’t the right option for everyone. It requires a particular disposition to handle a fixer-upper, and if you aren’t handy or interested in do-it-yourself projects, you might regret buying a home in need of renovations.
To help you determine if a fixer-upper is the right choice for you, here’s a list of pros and cons.
Pro: The potential for profit
If you buy a fixer-upper and renovate it, the home will appreciate faster than the general real estate market. Having a more valuable home will pad your net worth while you own it and result in more profit when you choose to sell it.
Pro: The ability to buy in a more desirable neighbourhood
First-time homebuyers often have a particular neighbourhood or location in mind when they start house hunting, only to find out that the houses in that area are more expensive than a mortgage affordability calculator indicates they can afford. If this is the case for you—as it was for me—buying a fixer-upper can be a good strategy to get into the neighbourhood, as they’re often more affordable.
Pro: A chance to save money
If you choose to buy a fixer-upper, odds are you will do at least some of the renovations yourself. Simple projects like painting, hanging curtains, tiling, and laying flooring are easily accomplished by even the most inexperienced DIYers. You’ll save yourself hundreds, maybe even thousands of dollars by doing it yourself.
Pro: Customize a home to your tastes
When you buy a home in need of updating, you have the unique opportunity to customize it exactly to your unique sense of style. If you prefer blond hardwood flooring to dark walnut, install that when you go to replace your floors. If you prefer white kitchen cabinets instead of oak or cherry, you can choose that when you renovate your kitchen. You don’t have to live with the seller’s design choices.
Con: Renovations are expensive
While you’ll pay less for a home in need of repairs, you’ll spend money over time, probably hundreds of dollars per month over and above your mortgage payment. Before buying a fixer-upper, you need to make sure you have enough room in your monthly budget to afford renovations. You can maximize the available space in your budget by searching for the best mortgage rates, which will keep your monthly mortgage payments low.
If you don’t have enough room in your budget for renovations, you may be stuck living in a home that isn’t in good condition and you can’t afford to renovate.
Con: Renovating is time-consuming and stressful
If you want to test the strength of your relationship with your spouse, try buying a home and renovate it together. Whether you choose to go the DIY route or hire a contractor, renovating is stressful, messy, and disruptive. If you have a busy career or children, you may find renovating to be more trouble than it is worth.
Con: Something always goes wrong
If you buy a fixer-upper, especially an older one, you’ll never be sure what is behind those walls until you start renovating. Perhaps there’s still knob and tube wiring when the seller stated they had replaced it. Maybe there’s asbestos in the walls or flooring. The possibilities for unwelcome surprises when renovating are almost infinite. If you don’t budget for these surprises you may find yourself going into debt to complete your renovations.
The bottom line
While there are many pros and cons to buying a fixer-upper, you should only attempt it if you’re reasonably handy, have space in your budget to pay for renovations, and are comfortable living in a home that’s disorderly at times.
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Flickr: Kristina D.C. Hoeppner