Guest Article – Bret Engle
Consider These Factors Before Buying That Fixer-Upper
Are you a first-time home buyer considering a fixer-upper? If so, the first thing you should know is that buying a fixer-upper is quite different than what you may have seen on TV. While it can be an amazing experience if you find that diamond in the rough, it can be downright terrible if you end up with a money pit. If you’re willing to take the risk and put in the work, investing in a fixer-upper may be your ticket to live in the house you’ve always dreamed of. But to make sure the risk is worth it, here are some factors you should consider.
Estimate your home affordability
You should first figure out how much home you can actually afford. The standard method of calculating this is typically based on your annual income, monthly spending, down payment, type of loan, and current average APR. Generally speaking, the higher your income and the lower your spending, the more house you can afford. Also, a higher down payment requires a smaller loan, which means ultimately paying less in interest, as well as lower monthly payments.
Pick the right neighborhood
When you’ve estimated how much you can spend on a home, the next step is to look at houses available in the neighborhoods you and your family are interested in. Part of what makes fixer-uppers so appealing is that you can find a house that needs work for much cheaper than comparable homes in the same area. Once you put the work in and get the house move-in ready, you’ll have bought a house in a great neighborhood for a bargain, and your investment will pay off. Look for a house that’s selling for 20-25 percent less than homes of similar size in good condition, and also consider the number of bedrooms and bathrooms when you’re comparing prices.
Get the house inspected
Once you’ve narrowed your search down, get any house you’re considering buying inspected by a professional. An inspection will show you what needs to be fixed and if there are any code violations. It’s also a good idea to have a contractor come in and do a renovation estimate. Though this can cost a few hundred dollars, it’s money well spent because it will help you through the rest of the buying process. When you get your estimate, add 5-10 percent to the costs for unforeseen issues. A good sign that you’ve found a diamond in the rough instead of a money pit is if most of the renovations and repairs needed are cosmetic.
Make a mock renovation plan
If you’ve followed the previous steps and found a house that is structurally sound, you need to make a mock plan for repairs and renovations to be certain the home will be worth the investment. Even if you plan on staying in the home forever once it’s fixed up, you never know what life will bring. So make decisions as if you’ll be selling down the road.
Sprucing up the kitchen is the fastest way to add value to your home. Then, you’ll probably want to take care of the master bathroom before you give the other rooms your attention. After you’ve completed a mock plan of all the renovations, ask yourself this question: Could you break even if you ended up having to sell? It’s ideal to have a house that could bring you a profit, but you at least want to be able to sell your house for what you paid for it.
Buying a fixer-upper can either be an amazing experience or a horrible burden. You could go from bargain home to dream home or cash drain. It’s essential to consider all the factors before signing the papers. Remember to estimate how much you can afford, pick the right neighborhood, get a home inspection and renovation estimate, and make a mock renovation plan.
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