Posted: Jun 29, 2012 at 12:54 PM [Jun 29, 2012]
The romantic notion of buying a fixer-upper appeals to many people. The discovery of a dingy old house listed for way below market price in a decent neighborhood could be the start of a dreamy house-to-home transformation. But you need to have a realistic view of the investment and commitment necessary to complete a successful makeover.
Here are some questions to help you determine if you can handle a fixer-upper:
Will the project pay off?
Fixer-uppers that require mostly cosmetic work will equal the highest return in market value. Updating the kitchen and bathrooms are cost-effective improvements as well as simpler touch-ups such as painting, floor refinishing, drywall repairs, adding new lighting fixtures, doors, and window shutters.
Most real estate professionals advise steering clear of homes that require extensive repairs such as electrical and plumbing system overhauls, foundation repairs, and major wall and roof work. These types of improvements are “invisible” and rarely increase the value of the house enough to be worth the money and effort. Avoid buying a home that needs major additions such as an all-purpose room or another bedroom in order to get it up to par with homes in the area; the cost far outweighs the return.
Avoid purchasing a fixer-upper in an area where housing costs are approaching a peak. Because a large-scale renovation job can take many months to years to finish, if home prices fall or stay flat during that period, in the end you could come out with a low return on your investment. Also, don’t over-improve. Your investments should not raise the value of the home more than 10 to15 percent above the median price of other houses in the area.
Do you have the funds?
Calculate an offer for your fixer-upper project by adding up the costs to renovate the property based on a comprehensive assessment of the home’s condition. Include materials and labor expenses. Subtract that figure from the home's probable market value after renovation (estimated from comparable real estate prices in the area.) Then subtract another 5 to 10 percent for additional upgrades or features you may wish to add, unexpected problems, and inflation. What's left is your offer.
NOTE: You don’t necessarily need to have all of your renovation funds lined up at the start of your project; you need enough to make the home initially livable. Then you can budget in your costs in stages as you go.
Do you have the skills?
DIY-ers are the ideal type of person to take on a fixer-upper. The time and energy necessary to transform that haggard house into a dream dwelling could potentially cost a fortune if you had to pay someone else to do it. Do you have the skills to paint, spackle, hang cabinets, install trim, replace light fixtures, lay new flooring, etc.? (You may need to hire a professional when it comes to electrical or plumbing fixes or other improvements where safety is an issue.)
Do you have the patience?
The old saying, “the journey is the destination” is especially poignant when it comes to making over a grungy rundown house. Applying your creativity and using your own hands to craft something uniquely yours requires time and patience. Big projects such as retiling the kitchen or renovating the bathroom could take weeks. Are you the type of person who can keep your eye on the prize while waiting for the grout to dry? Your total turnaround time could take months or even years. Consider creating a mock-up schedule to give you a realistic idea of the time investment necessary to reach your goal.
Turning your house-to-home fantasy into a reality takes a lot of planning, consideration, and patience, not to mention a major financial investment. You may want to seek guidance from professionals such as a real estate agent, contractor, or home inspector to better understand your risks. Despite the daunting task a fixer-upper presents, success stories do abound. Will you try your hand at writing your own story?
About Reinhart Realtors
Founded in 1971, Reinhart is the definitive market leader in the greater Ann Arbor area with six offices serving a large portion of southeastern Michigan and annual sales of more than $468 million. Founder Charles Reinhart said, "We never set out to be number one. We were committed to creating a quality organization." Throughout our history, our strong commitment to ethics, education, management, marketing and technology, and to providing a work environment that encourages personal growth and creativity maintains our position as the sales leader for Ann Arbor real estate.