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Thinking of Buying a Fixer-Upper?
Nail Down These Four Steps
If you’re good with your hands and you have some spare time, there’s a way you can get on the property ladder while saving a good chunk of cash -- buy a fixer-upper! Not only will you save money, you’ll get the satisfaction of turning a shell of a house into a livable home. However, getting a fixer-upper is not without its risks, and if you’re not careful you may end up spending a lot more on renovations than you intended. Here’s how to get it right and make a profit.
Find a Suitable Property
To find a great fixer-upper with potential in your area, you’ll need to do a bit more research than the average buyer. First of all, let your real estate agent know what you’re looking for, as they may have a line on some good options in your area. After that, check online -- many property listing sites allow sellers to list their house as a fixer-upper, but this may mean different things to different people.
When you find a prospect, it’s essential to bring in a professional home inspector to check the foundations, roofing, mold, and other aspects of the house that will be too expensive to repair. Also, have a contractor look around the house and give you a written quote on any work you don’t plan to do yourself. Do this before you make a bid -- this way, you will avoid any unexpected costs down the line. The national average cost of hiring a home inspector is between $244 and $421.
Make a Bid
If you want to resell the house, Money Crashers recommends you aim for no more than 70 percent of the after-repair value, minus your expenses. For example, the median listing price for a home in Colorado Springs is $316,000. Say you find a fixer-upper for that price, but it also needs $20,000 in repairs. Seventy percent of $316,000 is around $221,000, minus your $20,000 in expenses leaves around $201,000 -- this is around the maximum that you should ideally pay for this property. Of course, that’s a significant markdown, so you’ll need to be a tough negotiator to get that low price.
Complete the Work
Once you’ve successfully bought the house, the fun can begin. The Spruce has a great guide on how to plan and carry out your renovations, which also gives recommendations on which projects to do first and which to leave until the end. For some renovation projects, you may need a permit, such as building extensions, or most demolition work -- even of non-load-bearing walls. For the work you’ll complete yourself, make sure you have all the tools you will need. Apartment Therapy offers recommendations here, although your needs will vary depending on the work required.
Once the work begins, time is of the essence. The more time the house spends on the market, the more expensive the project will be overall, because you’ll likely be paying contractors by the hour, not to mention your own personal expenses. But if you find the right house, and you’re meticulous with your planning, you’ve got a great chance of success.
Article by Julian Lane