9)Myths & Facts About Fixer Uppers

Myths & Facts About Fixer Uppers:

What You Should Know BEFORE You Buy

"A home will only sell for what the market can bear. What this means is that no matter how many upgrades were made, or how much money has been invested in the upgrades, a home will only sell for what the majority of homebuyers are willing to pay."

Before deciding that your next home must be a fixer-upper, you should do some homework on what to expect when purchasing these homes. Many prospective homebuyers tend to have a romanticized version of the entire process and are shocked when confronted with the hard reality. Fixer Upper homes can often represent a good deal, but there are some points that a home buyer should be aware of before making that offer.

MYTH #1…

I can make a "killing" in the real estate market by buying a run-down home for tens of thousands of dollars less than the average home, fixing it up, and then immediately selling it for full or more.

FACT #1…

Most homeowners looking to sell their "fixer-upper" home understand that they will have to list their home at a price that reflects the cost of restoring the home to its original condition. The asking price of a fixer-upper is usually calculated so that the savings represented by the lower-than-average market price are roughly equal to the amount of money a buyer could expect to spend on necessary renovations. Updating the "look" of a home, or upgrading to higher-end finishes, is not included in these calculations, and you should be careful not to spend so much money on renovations that you cannot recoup your investment.

MYTH #2…

If I buy a fixer-upper home, I don't need to bother with the added cost and aggravation of a home inspection because I already know what I'm getting.

FACT #2…

A home inspection should always be included in an Offer To Purchase and Sell agreement, and it is arguably even more important to include one when you are looking to buy a fixer-upper. Structural defects are normally not visible to the untrained eye, yet will cost much more to repair than the obvious cosmetic fix-ups. Most licensed home inspectors will not only detail the defects they uncover but also give you a good idea of the costs involved in fixing them.

MYTH #3 . . .

It's better to pay less and buy a "fixer-upper" in an undesirable area than to pay more for a comparable "fixer-upper" in a better neighborhood.

FACT #3…

Most of us have heard the quote, "The three most important things to look for when buying a home are location, location, and location!" While this is meant to be funny and is a somewhat oversimplified rule of home buying, it does drive home the point of how important it is to consider where you will buy your home. Purchasing a fixer-upper in a desirable neighborhood will cost you more initially. Still, the payoffs -- personal peace of mind and higher return on your home investment when you sell -- should not be overlooked.

MYTH #4…

Once I fix this house, I can turn around and sell it for double the price I paid.

FACT #4…

A home will only sell for what the market can bear. This means that no matter how many upgrades were made or how much money was invested in the upgrades, a home will only sell for what most homebuyers are willing to pay. Factors to consider when calculating your possible return on investment:

1. Location: What kind of a neighborhood is the home in?

The type of neighborhood will determine which type of buyers you will attract when you sell. For example, an area consisting of mostly "first-time buyers" will attract buyers who have a strict and limited budget. Above all else, they are looking for affordability– high-end finishes and perfectly landscaped gardens.

2. Neighbors: What are the neighboring homes like?

A beautiful home surrounded by unkempt, run-down homes will sell for much less than a beautiful home surrounded by well-kept, nicely maintained homes.

3. Surroundings: What are the surrounding features?

Buyers are willing to pay more for a home in a convenient yet quiet locale. While you may find it convenient to have a property that backs up to a school, many potential buyers would eliminate such a location due to the noise level associated with hundreds of excitable children and the congestion caused by school buses and parents dropping off and picking up students.

MYTH #5…

I can make much more money by turning this single-family home into a multi-family dwelling. FACT #5… While this statement is, for the most part, true, it may not be possible. Most towns and cities have strict zoning laws that dictate the maximum allowable occupancy within any given area and the size and design of a home when building new or adding to an existing structure. Once you have thoroughly investigated the pros and cons of purchasing a fixer-upper home, and you have decided it's right for you, be sure to "run your numbers."

  1. List the Price of Fixer Upper
  2. Average Recent Sale Prices of Similar "Non-Fixer Upper" Area Homes
  3. Estimated Cost of Repairs from a Reputable Source (e.g., referred Renovation Company)
  4. Buffer Amount for "Unexpected" Repair Costs (usually 1/2 of estimated total)
  5. Selling Expenses (real estate fees, lawyer fees, closing costs)
  6. Amount of Profit You Desire after considering acquisition cost, cost to finance the rehab, cost of the sale transaction, and repair costs.

As with all investments, nothing is guaranteed. So, when looking to finance a home, remember that the real estate market has taken some big hits. Never overextend yourself financially. Please note that the figures in the calculations were used only for example purposes. Local housing prices, repair costs, and selling costs will vary greatly from one location to another. It is recommended that all Buyers thoroughly research their local costs and legal restrictions before purchasing. Also, all buyers should contact a tax professional before making a purchase.

When you start looking for a fixer-upper property, you don't want any unpleasant surprises that could cost you your next home. By understanding these myths and facts, you will be well on your way to buying a home that meets your needs and provides enjoyment for years to come. I hope you found this special report helpful, but please realize that this is just a small part of the overall process. Please call us at 858-281-4659 to build a plan together to realize your goals.

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