How to Buy a Fixer Upper That's Not a Money Pit
• Have you dreamed of what it would be like to buy a fixer-upper and return it to its former glory? In an effort to save money, perhaps you're checking out some homes that are not quite move-in ready. Or maybe you've been itching to put your power tools and DIY knowledge to good use. But does it make financial sense to buy a fixer-upper?
• Here's how to tell the difference between a home that needs a little financially manageable TLC and one that could end up costing you more in the long run.
• First, Get a Home Inspection
o If you enjoy watching home buying shows, you might be under the false impression that home inspections happen after you purchase a home. They shouldn't — you should always get an inspection before purchasing a home.
o Sometimes the best diamond-in-the-rough deals come as-is, meaning that the sellers may not pay for cosmetic or structural fixes. With the exception of a hot seller’s market, as-is home prices should reflect the amount of work they need. A home inspection may be more crucial in as-is purchases; it can allow you, the buyer, to walk away from some potentially huge and costly headaches. Get separate inspections for any issues where you expect to pay a hefty price to fix, such as a roof or fireplace.
• Consider the Home's Age
o Older homes are like older cars — it's tough to find the parts for an authentic restoration. The TV shows make restorations look easy, but remember, they have a production crew to hunt down those vintage door knobs and it's their full-time job.
o The older the home, the more potential there is for financial headaches, such as lead paint and asbestos, both of which require professional abatement. The inner workings, such as knob-and-tube wiring or outdated/nonexistent heating and ventilation systems, may require substantial upgrading.
• Focus on the Structure
o REALTORMag lists the 10 most common problems found during a home inspection. When it comes to a money pit, fixing foundation and structural issues will hit your home improvement budget the hardest. Structural problems aren't a DIY project. According to Home Advisor, the national average for fixing foundation problems is $3,995.
o Time and the ever-changing elements can also ravage a structure from the bottom up and the top down. Water can often cause some of the worst damage. Inspections might miss a costly byproduct lurking behind walls — such as black mold, which must be removed by a professional. Sellers also have to disclose known flooding, but this isn't always foolproof. To be on the safe side, for past and future flooding issues, check the home's location on FEMA's Flood Map.
• Do the Right ROI Analysis
o Calculating a return on investment means more than the cost of the home plus renovations subtracted from other homes in the neighborhood. In fact, it may be difficult to recoup the full value of your renovation, especially for work that requires a contractor, which will increase your cost. Keep in mind, the Family Handyman could also help you tackle renovations yourself and save money in the process.
o For a better ROI analysis, check out Remodeling's Cost vs. Value Report. Of course, the most important calculation is whether you can really afford that mortgage after all.
• Factor in the Odds and Ends
o Before you buy a home crammed with stuff, factor in the cost and time to remove it and haul it away. Planning on a gut job? Factor in getting rid of all of that construction debris. Demolition day looks so effortless on the TV shows, but according to Realtor.com that's not always the case.
• And, lastly, as with any real estate purchase — location, location, location. Make sure you buy a fixer-upper in a neighborhood with stable or increasing home values. A diamond-in-the-rough in an abandoned mine is fool's gold.
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(This material is presented for informational purposes only and should not be construed as individual tax or financial advice. Please consult with legal, tax and/or financial advisors. KeyBank does not provide legal advice. KeyCorp 2017. KeyBank member FDIC.)