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Should I Buy a Fixer-upper?

The other day, we considered the dilemma between buying an existing home or building a new one from the ground up. There are obviously pros and cons to both approaches, and in some cases, you may not even have the option of building based on your budget and your geographic location. Fortunately, there is a middle ground for those who have visions of customizing a dream home but may not necessarily be in a position to start with an empty lot and a pile of lumber. 

If this describes your situation, you may be a good candidate for a fixer-upper—a home in genuine need of repairs, renovations and updates but also a home that can be had at something of a discount rate because of these needs. If you have the patience, vision, budget, and energy, this could be a great path toward building a home that fits your life. And if you happen to bring some practical skills to the table like woodworking, masonry, plumbing, or electrical wiring, there’s a lot that you might be able to do on your own. 

But of course, the other side of the coin is the dreaded money pit. We’ve all heard the horror stories–deals that seem too good to be true and homes cursed by a seemingly endless litany of unforeseen calamities until your original investment is long-forgotten under a mountain of constant expenses. Such is to say that buying a fixer-upper is not without its risks. What may seem like a good deal could actually be a personal boondoggle waiting to happen. 

So make sure that you know exactly what you’re getting into, and exactly what you’re getting, when you buy a project. 

Rocket Mortgage says that there are many good reasons to buy a fixer-upper. According to the mortgage lending site, “You may benefit from a fixer-upper if you’d like more house for your money or are interested in flipping it to make a profit.” But Rocket also warns that this opportunity can come at a cost, pointing out that “While you can likely still live in a fixer-upper, you’ll need to spend a lot of time and money on structural and/or cosmetic improvements.”

In other words, a fixer-upper can be a great investment as long as you know what you’re getting. But before we discuss the best strategy for finding the right work-in-progress home, let’s take a quick look at benefits and drawbacks of this strategy.

The Pros and Cons of Buying a Fixer-upper

The Pros

  • Spend Less Up Front: This is a chance to get more home for less money based on the shared understanding between all parties that the property requires a considerable investment of work and money.
  • Choose Your Materials: You can choose to use the very best materials, the most affordable materials, or something in between, to produce a house with improved personal and market value.
  • Face Lower Mortgage Competition: In the midst of an extremely overheated real estate market, you will likely face fewer bidding wars when you set your sights on properties that require a lot of work.
  • Pay Lower Tax Rate: Your property tax rate is generally based on the purchase price, and not the price after improvements, which means you could get a discount on the tax rate for your home relative to other homes of a similar size in your zip code.
  • Build Your Dream Home: Major renovations also mean that you’ll get a chance to make major decisions about the look, feel, layout, and design of your home.

The Cons

  • Expensive Renovations: If the price of a house is deeply discounted, it’s usually an indication that there are very expensive projects in store for you such as foundation repair, total interior redesign, or roof replacement.
  • Unpredictable Issues: Unforeseen costs, delays, and demands tend to reveal themselves during the renovation process, which means your costs and timeline will likely both stretch longer than you initially anticipate.
  • Long Waiting Periods: If you expect to live in your fixer-upper during construction, plan to channel all of your patience as you endure delays in the availability of materials, work stoppages due to weather, or missed deadlines due the many idiosyncrasies that independent contractors can bring with them to the worksite.
  • Supply Chain Issues: Likely the biggest factor contributing to long waiting periods and unexpected delays in work will be the supply chain, which has been riddled in recent months with inefficiencies and shortages.

Tips for Buying a Fixer-Upper

Understand Your Capabilities…and Your Limitations

Fixer-uppers often come with big ideas. You can get a lot more house for a lot less money if you’re willing to put in the sweat. But you’re also buying a huge commitment of time, energy, and money. Be sure you have all of these things in sufficient supply before diving in, and be realistic about what you can do on your own, what you need to contract out to the professionals, and how long you’re willing to live inside an active construction zone. Curbed magazine warns that “It’s one thing to buy a minor fixer-upper that can be tackled with cosmetic projects—like pulling up carpet or laying down tile—but it’s something else entirely to buy a home that has serious structural issues. The magnitude of the project you’re willing to take on will set the tone for your house hunting.”

Are you willing to take on a total teardown renovation or are you in the market for something that just needs a lot of paint, carpeting, and love? There’s a big difference in the amount of money you’ll be spending as well as how much you can do without enlisting outside help. Before you even begin to look for properties, you must go in with a strong sense of just how much fixing up you’re willing to do on your fixer-upper. This should help you hone in on properties whose needs are scaled to your budget, abilities, and patience. 

Know the History of the Home

When you buy a fixer-upper, you’re purchasing the history of the property including every chronic maintenance issue, every outdated appliance, and every environmental condition that comes with it. Do your due diligence to learn the whole history of the home including its age, the timeline for any major renovations, the relative age of important features such as the roof and windows, and incidents that might have required major repairs over the years including to the foundation, chimneys, basement, etc. You’ll also want to know whether the home has a history of flooding, leaking, termites, and more. Speak to the seller or realtor, find out everything you can about the list of prior occupants. And if you need to dig deeper, you can try contacting the Department of Records for the municipality where the property is located. This department may be able to provide some insight into the actual age of the structure, previous title holders and usage of the land, and any permits that have been pulled for renovations and repairs over the lifespan of the home. 

Do an Exhaustive Inspection

An inspection is always a critical part of the home buying process. Even if you’re purchasing a home that is ostensibly new and well-maintained, an inspection is critical. This can reveal hidden issues, forecast future expenses and provide you with a complete understanding of the home’s structural integrity. All of these benefits take on added importance with a fixer-upper. Understanding what the house needs will be essential to producing a savvy offer on the property. 

That’s why, says This Old House, “It’s essential that the real estate contract include an inspection clause. At best, the inspection will assure you that the house is a good investment; at worst, it will help you back out of the deal. Often with fixer-uppers, it’s something in between. The inspector will document a serious problem or two, and you can use the findings to get the seller to pay for repairs or negotiate the sale price downward.”

Know the Cost of Your Renovations

With an inspection completed, you should have an extremely comprehensive list of repairs and renovations in hand. Now you need to determine what it will actually cost to knock out everything on your list.  This Old House advises the prospective buyer to be unforgiving during this stage in the process. As you add up these costs, “be tough with this estimate, which should include materials and labor — yours and other people’s.”

During this stage, scrutinize the property as deeply as you can. This is the time to consider every possible need in the structure’s short- and long-term future. This includes: major renovations; large-scale repairs such as foundation work or roof replacement; exterior work like landscaping, painting, and paving; appliance installation both immediate and in the next several years; plumbing, electricity, ductwork, masonry, etc.; and the array of small to medium projects on your wishlist like smart home technology, security, carpeting, and much much more. In other words, be as exhaustive as you can in anticipating what you’ll spend to create the house you desire. 

Find Out What Permits You’ll Need

Now that you have a full list of the renovations and repairs in your future, you’ll also need to determine which of these projects will require special permits and, subsequently, what each of these permits will cost you. The zoning, permit, and licensing rules are different in every state and municipality. Before you undertake any major projects–especially those on the exterior of your home such as a fence replacement, a porch bump-out, new walkway pavers, or a home expansion–find out what the rules are in your city or township. 

Visit the website or office for your city hall and get a rundown of the permits you’ll require and exactly what you can expect to spend on them. The costs can really add up depending on the rules in your municipality and the range of projects on your plate. HomeAdvisor notes that the scale of your project will impact the cost of permits, and indicates that while you might pay $500 for the permit to undertake a bathroom renovation, you would likely pay something closer to $1500 for the permit to undertake a “great room addition.”

Be sure that you’ve factored these expenses into the overall cost of your fixer-upper before you make an offer on the house. You’ll want to account for these costs when you decide what the house is worth to you.

Negotiate the Price Based On What You Expect to Spend

Figuring out what you should offer for a fixer-upper requires thorough cost analysis. By now, you should have already totaled up the costs of renovations and permits. This is the time to look at other homes in your market and see what they’re selling for. Determine the average sale price for homes that are comparable in size but which have already undergone updates and renovations. This offers an approximation of what your prospective home might be worth after renovations. 

Subtract the sum total of your expected costs (i.e. renovations, repairs, permits, etc.) from the average price of an updated home in your neighborhood. Once you’ve done that, “deduct at least another 5 to 10 percent for extras you decide to add, unforeseen problems and mishaps that have to be dealt with, and inflation.”

The number that you’re left with is the absolute most you should be willing to pay for a fixer-upper. If there isn’t a great deal of competition for the property, consider a starting offer a few thousand dollars lower. This will give you some room to negotiate within your intended budget. If negotiations push you beyond the number produced by your cost analysis, this may not be the right property for you. 

Expect to Go Over Budget on Renovations 

In the section above, we advise building a cushion into your offer to account for “unforeseen problems and mishaps.” This is not an optional cushion. When budgeting for repairs and renovations, always anticipate spending more than the initially stated sticker price for labor, materials, fees, and taxes. During the process of repair and renovation, even the most exhaustively inspected home may yield new demands. An unforeseen weather event may yield evidence of a newly sprung leak. Installation of new drywall may illuminate previously overlooked faulty electrical wiring. 

And of course, in this post-pandemic age, one must anticipate lengthy delays in receiving materials as well as unpredictable spikes in the price of essential home building supplies. Supply chain issues continue to present challenges to builders—to private homeowners, independent contractors, and major construction firms alike—both in terms of completing renovations in a timely fashion and controlling their costs. With this in mind, take every step both financially and emotionally to prepare yourself for budget overages. 

Explore Loan Options for Home Renovations

As you calculate your budget, there is another factor to consider. If you anticipate making costly, large-scale renovations, you may want to look into a Home Renovation Loan. Many of the top banks and mortgage lenders also offer loans for major renovations. This is a popular option for those buying fixer-uppers in need of a lot of work. Lenders like Lending Tree and Bankrate offer an array of options to prospective home buyers. 

Just bear in mind that if you do take advantage of this option, you will be required to repay your loan with interest. You’ll want to calculate the expected sum total of that interest into your final cost analysis as you put together an offer for the property.


If you’re considering investing in a fixer-upper with serious needs because you feel it’s a better fit for your budget and credit score, you might also benefit from a few tips on How to Buy a House with Bad Credit