Investing in Fixer-Upper Real Estate: Pros, Cons and Renovation Tips

Whether you’re new to buying homes or a seasoned player in the real estate market, you’ve likely heard the advice, “Buy the worst house on the nicest block”. This strategy comes recommended by real estate agents, mortgage brokers and others in the industry. The idea is to maximize your investment by purchasing a fixer-upper in a desirable neighbourhood, renovate it and sell it for a higher value. While not a new concept, the question remains: is this strategy right for you? In this month’s blog, we delve into the potential advantages and disadvantages of investing in fixer-upper real estate. We’ll help you determine if it aligns with your investment goals and offer practical renovation tips to get you started.

What is a Fixer Upper?

A fixer-upper is simply a house that needs a lot of work. These properties vary widely in their condition, from needing basic repairs to complete remodelling or redecoration. Typically, fixer-upper homes have multiple issues, which can be cosmetic, structural or both. Due to these issues, they’re often priced lower than other homes on the market. Why do buyers gravitate towards these properties? For some it’s the challenge of transforming a neglected home into something beautiful. Others are drawn by the opportunity to purchase a home in a desirable neighbourhood at a lower cost than move-in ready homes. This affordability can open doors to communities that might otherwise be financially out of reach.

Upsides of Buying Fixer-Upper Houses 

• More Affordable: Fixer-upper real estate typically boasts lower listing prices and down payment requirements compared to other homes on the market. This positions fixer upper houses as an attractive option for first-time home buyers.
   
• Potential for Equity. Investing time and money into a fixer-upper offers the chance to increase the property’s value significantly. This is especially true if the property is located in an up-and-coming neighbourhood or one that is currently undervalued. Making repairs, renovations and updates can enhance the property’s appeal to future buyers.  
   
• Less Competition. There’s generally less competition for fixer-upper houses, as most buyers prefer move-in ready properties. This gives you better odds of finding greater fixer-upper real estate listings.
   
• Endless Opportunity to Customize. With a fixer-upper, you have the freedom to customize it to your liking. Plan out each room to reflect your personal style while also considering how each of these changes might impact the home’s resale value.

Downsides of Buying Fixer-Upper Houses  

• Renovations Can be Expensive: Be prepared for how quickly expenses can add up. Set a realistic budget for remodelling and once you have that amount, increase it by 15 percent to account for any unforeseen expenses.

• The Job Might Take Longer Than Expected: There’s a chance your renovations run behind schedule and take longer than anticipated. If the house isn’t livable, you might need to find temporary housing. If you’re lucky, you can stay with family or friends, but if not, you might have to spend more money renting a place.
   
• Unexpected Issues May Arise: A word to the wise, when purchasing fixer-upper real estate, expect the unexpected. Delays and rising costs can appear out of nowhere. Additionally, life events such as job loss or accidents could prevent you from working on your project. Be prepared for setbacks.
   

Getting a Mortgage for a House That Needs Work: What you Need to Know

When it comes to getting a mortgage for a house that needs work, the primary risk is that homeowners might run out of money before completing the renovations, leaving the lender with an unfinished property to sell. Whether you’re buying to renovate and hold or to flip can significantly impact your ability to get approved for a mortgage. If you plan to buy a property, fix it up and either live in it or rent it out, this typically aligns with residential mortgage lenders’ criteria. However, if you intend to buy, renovate and then sell the property for a profit, securing a mortgage can be more challenging.

 

Tips to Nail Your Fixer-Upper

Seek out Projects With High Returns

Not all fixer-uppers are worth tackling. When looking at fixer-upper real estate listings, keep a few key things in mind. Location is especially important. If you find an affordable property in a great neighbourhood, it could be a solid investment. On the other hand, buying in a less desirable area might mean spending more on renovations without a guaranteed profit when selling. Besides location, think about factors like views and any obstacles that might affect the property’s value.

Do the Math

Get out the calculator; it’s time to crunch some numbers! Start by making a list of everything you need to make the house livable. Then, create another list of renovations to make it the envy of the neighbourhood. Rank tasks by priority and request quotes from multiple contractors to see where you stand. Calculate how much you need right now and how much you should save for future projects. Budgeting is key here. You don’t want to spend all your money on renovations since owning a home also comes with unforeseen expenses that you need to be ready for.

Address the Simple Fixes, Too

Sure, your new house needs a lot of work, but sometimes the smallest improvements make the biggest impact. A fresh coat of paint, refinishing the floors and modern appliances can significantly boost the appeal of your fixer-upper. If you can, try doing some of the work yourself – it’s usually cheaper. But if DIY isn’t your thing, be ready to spend weeks or even months, depending on the extent of the projects, managing contractors. Keeping track of their progress helps prevent delays, mistakes and extra costs, all of which can affect your budget and profits.

Find Fixer Upper Real Estate Listings With McGarr Realty

Fixer uppers aren’t for everyone, but they’re a great opportunity for those skilled in various trades or who know people who are. These properties allow you to save on current market prices while increasing your return on investment. If you’re thinking about investing in fixer-upper real estate, McGarr Realty is here to help. We can guide you in finding a property that fits your needs and budget. Start browsing and check out our fixer upper real estate listings. To learn more about navigating the world of fixer-uppers, get in touch with us today.