Should You Buy A Fixer-Upper? - Part 2
As wonderful and exciting as it can be to purchase a fixer-upper, there are also many potential negatives:
Repairs may cost more than expected.
More repairs than expected may be necessary.
Resale without the needed renovations may be difficult.
Repairs may take more time than expected.
Repairs may take more skill than expected.
The repairs may cost more than the value they add, leading to an investment loss.
It may be difficult to get a loan.
It may be difficult to get insurance.
If you're buying a house that needs work, you're immediately assuming many risks. Not only could you end up buying a "lemon," other necessary parts of homeownership, such as purchasing insurance, may suddenly become more difficult as well. After all, insurance companies assume risks when giving you insurance and a fixer-upper may be far more risky to insure.
The biggest risk, of course, is that you're buying a money pit. That means you may want to make improvements that will raise the value of the asset, but you may find yourself running into unexpected problems. After all, many buyers acquire their fixer-uppers through foreclosures or short sales, where they may not be able to receive proper inspections before closing a purchase. Once you move in and start the renovation process, different problems may present themselves.
Such issues that can quickly run up repair costs include:
Bad or faulty wires that need replacement
: $3,500 to $8,000
Insect or rodent infestations (such as termites)
Rotting support beams
: $1,000 - $30,000
Rusting plumbing or recalled plumbing materials
: $8,000 - $10,000
: $500 - $6,000
It can be difficult to find these problems until you close a deal and have permission to begin tearing into the walls or floors. If you encounter problems like these, you will have to delay the more visible renovations that add value and focus on the structural work. These structural repairs rarely add more value, as potential buyers see them as regular maintenance. Particularly in the case of mold, rusting pipes, and rodent infestations, resolving these issues is an immediate necessity, especially if you have children.
Should I Buy a Fixer-Upper?
Whether or not you choose to purchase a fixer-upper will depend on your assessment of the house, how much of a price break you are getting, and whether you can accept the associated risks. If you have sound financial backing going into the purchase, and you have been able to do an inspection that can certify most of the potential problems are not present or not costly issues, a fixer-upper can be a good idea. However, consider the following before making that purchase:
Age of the building
. Older houses may have more hidden problems than newer ones.
. How many people owned the home before the current seller? What were the sale prices in the past? If the house was selling high several times in the past and had previous owners who lived there for some years, they may have taken care of many issues before the current sale.
The extent of the problems
. Are you looking at some cosmetic blemishes that are relatively easy to address or structural issues that affect livability or safety? You don’t want to buy a house thinking that it’s a fixer-upper and discover later that it was a tear-downer!
Make sure that you are making an educated decision before purchasing the home. Learn as much as you can about the home, its previous or current owner, and its renovation history. You need to have your finances in order with enough wiggle room for the unexpected!