Should You Buy A Fixer-Upper?

We see a lot of home improvement and renovation on TV these days. Whether its Chip and Joanna Gaines on Fixer Upper or Jonathan and Drew Scott on Property Brothers, channels like HGTV have made buying and renovating the “fixer-upper” something of an art form. There are some major differences between TV and reality, though. If you take on the challenge, you're not likely to finish your project in 30 minutes!

Buying a house that needs work can be both exciting and challenging. There's no doubt that houses needing significant repairs can be available at quite low prices, which is an attraction. Unlike in the popular shows you see on TV, though, the renovations you make won't always go smoothly, and most families do not have tens of thousands of dollars in reserve to pour into immediate repairs or into the unexpected hiccups that can occur along the way. The idea is that you will buy a house at a low price, invest some time and effort in repair, and transform the house into something that's worth more than you put into it. That is indeed possible, but it doesn't always work that way!

So what should the average buyer honestly expect when purchasing a fixer-upper? Let's look.

The Pros and Cons
As with any house buying, there are advantages and disadvantages to purchasing a fixer-upper. For a low- or middle-income family, those pros and cons usually involve money and value. There are a few questions to ask yourself before you make a decision:

How much reserve cash do you have to make repairs?

What is your credit score (you may need loans)?

How well do you handle stress?

How handy are you with doing DIY repair projects?

Do you have friends, families, or acquaintances that can help you make renovations?

How long do you intend to live in the house?

What repairs does the house need?

While an uncertain or negative answer to any one of these questions, or even all of them, should not keep you from purchasing a fixer-upper if you see value there, negative answers are a good sign that you should think carefully before proceeding. Repair projects can be costly affairs, and often require the homeowners to do a lot of the work themselves, or to take out loans to have professionals do it.

The Advantages
Buying a fixer-upper is not all bad news. After all, there are numerous good reasons many people buy them. Let's check out some of the benefits:

Easier to purchase with less competition from other buyers

A smaller total down payment

A smaller mortgage with lower monthly payments

More options for customization

Increased value with the right improvements

Potential to make a profit on a resale after making improvements

Provides valuable learning experience

Whether or not these arguments are enough to bring you into the world of home repair will depend on you and on the house you're considering. You'll need to evaluate your time and skills, the resources you can devote to repairs, and the type and extent of repair the property needs.

Consider the following:

At the start of 2017, the median sale price for a home in the US was around $227,000[1]. Recent data shows the average “fixer-upper” sales price median was about 8% lower than the national median[2], which would bring the median price down by over $18,000. Not all areas are the same, however. In Cleveland, Ohio, for example, fixer-uppers were 31% cheaper than move-in ready houses, while in Phoenix, Arizona, fixer-uppers were only 0.4% cheaper, which indicates that the savings would not be worth the cost of the repairs in most cases.

For some buyers, the average 8% discount of around $18,000 can go toward making needed renovations that might raise the value of your home above the median price in the neighborhood. However, this will only be beneficial if you do the following:

Perform simple renovations cheaply that you can do yourself

Make improvements in areas that provide the best return on investment

As reported by US News and World Report, renovations with the best returns on investment (ROI) include:[3]

Entry door replacement: 96.6 percent ROI

Deck addition (wood): 87.4 percent ROI

Attic bedroom: 84.3 percent ROI

Garage door replacement: 83.7 percent ROI

Minor kitchen remodel: 82.7 percent ROI

These are all projects that involve minimal effort and some that you may be able to do yourself with enough time, patience and assistance. Still, you may need to hire a contractor for some major projects, such as a kitchen remodel.