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A First-Time Buyer Asks - Should I buy a fixer-upper?
This is a continuation of the series of posts for first-time buyers. The initial posts concerned the steps in the real estate process involved in looking for and buying a new home. This series of posts concerns some of the things that first-time buyers are likely to hit or questions that they are likely to have.
This question about fixer-uppers, like many others here, has no simple answer. First you must do an honest evaluation about your abilities to actually do the fix-up work. Most houses that have deteriorated enough to be at the fixer-upper level require quite a bit more than just stripping some wallpaper and repainting. Buying a true fixer-upper is not for the faint of heart or unskilled, no matter how easy it looks on those TV shows.
Here is my advice – take it or not.
First, get the most thorough home inspection that you can on the place. Fixer-upper homes often have LOTS of hidden damage and issues. Many fixer-uppers have suffered through years as rental units, without anyone really caring about what was happening to major systems in the house. Some that are sold “as-is”, as fixer-uppers, were intentionally damaged by disgruntled owners (maybe as the result of a bad divorce) or renters. Some have just suffered the ravages of abandonment; especially if they have been left over a winter without being properly winterized. If you can’t get the power or water turned on for an inspection run in the opposite direction; the place likely has major and costly problems.
The point is that these are many times houses that need and require much more than superficial redecorating and painting to be viable again either to live in or to re-sell. A good, thorough home inspection will likely result in a list (maybe a long one) of things that need to be done to make the house livable again. DO NOT skip that step!
The next thing to consider is what the repairs and updates are likely to cost and whether or not you will be able to recoup those costs, should you be considering selling the house once it is fit again. Unless you are a licensed HVAC Technician, plumber or electrician, you will likely have to have problems in those areas that are best handled by a licensed professional. You may be capable of doing many of the normal carpentry and remodeling things yourself, but even those should only be done with a permit and with the proper post-work inspections and approvals by your community’s local governmental body. Dong major work without permits will come back to haunt you or a future owner (who will then come looking for you anyway – and don’t for a minute think that you will be off the hook for that work).
Next, of course is to consider the cost and the return on the projects involved with the house. From the Remodeling web site you can find a list of updates or home improvements, what they cost and what they normally return to the home owner in your area. Click on http://www.remodeling.hw.net/cost-vs-value/2017/ to go to that site.
I wrote a blog post back in 2015 that focused upon the need to do an honest self-assessment of both your skills and the tools that you have, before you jump into a major home rehab project. Read that at - http://milfordrealestate.blogspot.com/2015/07/dont-diy-of-you-dont-kwyd.html
After you have had your own conscience-cleansing meeting with yourself and determined if you are, in fact, capable, willing and can afford to take on the work (whether that be work yourself or acting in the prime contractor role for work done by professionals) involved with a true fixer-upper, then you need to look at the financing implications.
You’ll need to determine whether or not an appraisal of this jewel-in-the-rough will come close enough to the offer price to allow you to actually finance it. Most people who take on fixer-uppers do so because they can “see the potential” in the property. Most appraisers are just looking at what is there now. There can be a big disconnect. Unfortunately, there is no way to determine this short of actually having the appraisal done. Assuming that the house will appraise at enough to let you buy it, do you have the money (or personal borrowing power) to be able to afford to do the work that is required. There are mortgage programs for fixer-uppers that will finance the house and the needed repairs, but you will normally need to get the work professionally done to use them. Check out this article from Trulia on the programs from FHA and Freddie Mac to finance fixer-uppers - https://www.trulia.com/blog/want-a-fixer-upper-this-mortgage-is-for-you/
“Sweat equity” is what most first time fixer-upper see as their investment in the project, but the reality is that the new cabinets or the 2 X 4’s and the wallboard or the new bathroom fixtures or the new sink in the kitchen or the new carpeting all cost real money. If you go into a fixer-upper project under-financed for the renovation project, all you might end up with is a half-done money pit that you’re forced to try to unload (likely at a loss). I have sold many homes out of foreclosure that got there just because some well-meaning young couple got in over their heads on a fixer-upper remodeling project.
One note of extreme caution! If you see what you even think might be asbestos STOP and get a professional involved. Asbestos is one of the nastiest things that you can deal with and you really shouldn’t try. To read about the dangers of asbestos, go to www.asbestos.com. To read about the dangers of asbestos in home remodeling projects go here - https://www.mesotheliomalawyercenter.org/asbestos/home-repair-remodeling/
So, can a fixer-upper be a good deal for you, either as a home or an investment? The answer is yes, but it isn’t anywhere as easy as the TV shows make it look. Remember that even Tarek El Moussa on HTV’s Flip or Flop has flops and he’s a pro at this. He also doesn’t try to do all of this own work. He always works with a contractor. Movies like “The Money Pit” (http://www.imdb.com/title/tt0091541/) may seem funny to you unless you have been through a remodeling from hell.
Professional house flippers know what they are getting into and they have the contacts, skills and tools to take on those projects. Most would-be buyers of fixer-suppers do not have those things and that is why so may fail. If you are looking at fixer-uppers because you don’t have the money needed to buy a home in really good condition, don’t do it. Instead look for a home that is in good condition but just needs some updating. You are much better off buying a house for $100,000 that needs some update than investing in an uninhabitable $60,000 mess that needs complete remodeling.
So, that’s my two-cents worth on fixer-uppers.
Norm Werner is a Realtor® working for Real Estate One in Milford, Michigan. Norms helps people buy and sell houses in Southeastern Michigan, in Oakland, Livingston and Macomb Counties You can contact Norm about finding a new home or about getting a Market Analysis for your current home by texting or calling him at 248-7863-2497 or click here to go to his web site and fill out Help Form for buyers and sellers.
To see all of the post that have been made to this series of posts go to the post series index.