Fixer-uppers are tempting prospects. Such properties let you buy into a desirable neighborhood at far below typical market value. That’s because you’re not buying a typical house.
With fixer-uppers, you must think carefully. Ask yourself: Will this house be worth the work I put in? To find your answer, follow these three steps.
1. Add up the costs: First, consider everything that needs to be done in the home. Always assume more work rather than less. Add up all costs for materials and labor. If you plan on doing some of the work yourself, factor in your own labor costs as well.
Hiring a home inspector helps a lot during this step. Their expertise can ensure you’re not missing any costs hidden behind the walls or under the roof.
2. Calculate the final value: Regardless of whether you plan to sell the house or live in it, you need to estimate what the finished value will be. Search for comparable listings, or “comps,” that have sold in the area to get a rough idea of what to expect. A Realtor can easily run a search on your behalf.
3. Find the difference: Finally, subtract the total estimated costs from the estimated final value. Subtract an extra 5-10% for unforeseen issues. The number you get should be the absolute upper limit of what you offer. Anything more, and a great deal can easily turn into a money pit.
If that final number looks good to you, then that fixer-upper may be just what you’ve been looking for. Time to secure a renovation loan!