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Money Pit or Wealth Builder: Purchasing a Fixer-Upper

Money Pit or Wealth Builder: Purchasing a Fixer-Upper

A fixer-upper can be a great investment when you know what you are getting into. Homeowners that purchase and renovate fixer-uppers can often see their homes appraise for 50% or more than what they paid when they purchased it. That’s a pretty substantial return on investment.

But before you pick a fixer-upper as your next home, be careful!

  • Be sure you like the general “bones” of the house. If you are buying a craftsman, don’t plan to turn it into something its not. The key is understanding the features you love in a home and then finding a fixer-upper in the right neighborhood that has the fundamental characteristics you enjoy.
  • Sweat equity counts. The more work you can personally put into a home the more value it will have at the end of the process. And less you think you aren’t talented… nearly anyone can handle demolition and paint interiors. The key is in finding a contractor that will help you help them in whatever ways you are equipped to work.
  • Be prepared for surprises, cost overruns, and the process taking longer than you imagined. “Fixer” homes often have surprises. From cracked foundations to needing completely new electrical wiring throughout, fixers can cause serious heartburn especially if you’re watching each dollar because the scope of the project is pushing you to your financial limits. It’s better to be sure you are well within your means so that you have spare room in your budget for the surprises that will invariably happen.
  • Watch out for code-upgrades. Most jurisdictions have requirements that when homes are going through a major renovation, such renovations trigger mandatory upgrades to the home that typically include electrical and plumbing systems. If you are buying an older fixer that has never seen an update… this could add a lot of costs to the project.
  • No matter how much you love the home or the neighborhood… be sure you don’t go from fixer to most expensive home on the block. In other words, benchmark similar homes with upgraded interiors and their overall value. Be sure the cost of the home and the cost of repairing it won’t take you to the limit of these other home values.

One other thing that most folks overlook… be sure to talk with your insurance professional as you begin the process of purchasing and fixing your new home.

They can give you guidance on insurance products designed to protect the property during construction and they can make sure you have the right amount of insurance for what the home is truly worth after renovations… not just what you paid for it.

A fixer-upper can be a great investment if you have the time, money, and emotional energy. And like many others who have gone before you, if done right you’ll have a home that’s worth more PLUS the satisfaction that goes with creating a space that’s truly yours while improving the value of the neighborhood around you as well.