Key insights:
- A fixer-upper may require attention, but you can customize the home however you’d like.
- If you have a tight budget, fixer-upper price points and renovation loans could be your solution.
- Be sure to consider what your expectations are post-home-sale; a fixer-upper may be the perfect fit for one buyer... but a headache for another.
The housing market is currently facing low inventory and affordability challenges. And, while a turnkey home is preferable for some owners, it may be the optimal time to consider homes that aren’t in perfect shape — yet. Here, we explore the benefits and downsides of purchasing a fixer-upper.
Lower price points and (potentially) fewer buyers
Pro: Fixer-upper homes tend to be priced lower than houses that are completely modern and ready to move into. So, you may save money right off the bat when considering a fixer-upper home.
In addition, these homes may not be drumming up as much interest initially. Therefore, you may not have to enter a bidding war, which also tends to drive up a home’s price.
Con: Although a fixer-upper home may save you money, you might end up putting the money you saved back into the home through renovations and other improvements. So, despite saving money up front, you could end up spending the same amount (or even a bit more) in the long run.
Your house, your customizations
Pro: When you’re fixing up the space, you can make the home entirely yours. Although fully renovated houses are great upon move-in, over time you may wish the space were different. With a fixer-upper, you can ensure that the kitchen layout matches your lifestyle or that the main floor has a small bathroom and laundry room instead of an oversized mudroom.
When you upgrade the fixer-upper house, you’ll have control of the home design and can make decisions that benefit your lifestyle and needs.
Con: Remember that some features that seem fabulous to you may not be at the top of the next buyer’s list. So, if you’re not going to be in your house for a long time, or you plan to flip it, be sure to consider your desires and the home renovation projects with the most ROI.
Renovation loans can help with budget and timing
Pro: If you choose to purchase a fixer-upper, you may be able to take advantage of renovation loans. A renovation loan bundles up your home mortgage loan and the cost of any needed repairs. One stipulation that lenders put on renovation loans is a set deadline for your proposed upgrades. But this end date may be just what you need to get all your upgrades completed in a timely fashion.
Con: Most lenders require a very specific project plan with set deadlines for selecting a contractor and completing the work. The process of getting approved for a renovation loan — while working to secure a contractor who agrees to the work — can be stressful. And, you’ll need to coordinate the project plan while also sealing the deal on the home. Be sure to consider the potential stress and stipulations that can come with renovation loans. Is a fast renovation plan right for you?.
Small budget, big dreams
Pro: When purchasing a fixer-upper, you might be able to make more of a small budget. Some buyers find that by purchasing a house with “good bones,” they’re able to put their money into the renovations they desire most. With thoughtful consideration and planning, you can stretch your budget to get meaningful results.
Con: If you’re funding house updates with a renovation loan, know that your lender may limit your renovations to take up a certain percent of your total loan limit. That means that the type of renovations you see on reality TV shows — where the buyer pays $100,000 for the house and then puts in $200,000 worth of updates — may not be possible for you.
And in general, remember not to gauge your renovation costs off what you see on HGTV or home fix-up blogs. Many of these folks benefit from partnerships to get discounted materials, low-cost (or free) contractor labor and other items that aren’t factored into the budget you see shown on the screen.
Final considerations
All in all, you must consider your personal preferences when determining whether or not a fixer-upper is right for you. A turnkey property may be extremely convenient, and your less likely to have to deal with immediate large repairs or issues post-close. However, a fixer-upper home may better fit within your budget and give you the chance to customize your space.
If you’re ready to search for homes in your area, reach out to Edina Realty or one of our agents. Our team has years of experience to help you find the home of your dreams, whether it’s a fixer-upper house or an already pristine property.
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