5 Serious Questions to Contemplate
Do you have the Time?
Buying a fixer-upper is like having a baby I have been told. I may not have had a child, but I have had fixer-uppers and they demand all your free time. If you only have a few spare hours a week and plan on doing the work yourself, you are asking for trouble. You will need at least 1 long full day of work per week to make any meaningful progress. Do you have that kind of time already set aside?
If you're planning on hiring professionals or family... letting them do all the work, please do not think your spare time won't be spent. You will still need several hours every week to handle meetings, make selections and of course write lots of checks.
Do you have the money?
Buying a fixer-upper can be a cash-intensive operation. Many that purchase a fixer-upper end up living in an unfinished construction project for far too long because the money needed to complete isn't there. It's important to have a plan, a budget and at least a decent amount of funds put back prior to getting into anything major.
Another money gotcha can be financing. If the basics for living are not available in the home traditional financing can be nearly impossible. That higher cost of alternative financing can eat into the financial benefit of the entire project. This is why so many good fixer-uppers go to cash buyers who are often investors looking to flip the home for profit.
Do you have the skills?
Your new house is going to be one of your largest and most important assets. Therefore you really don’t want to do lousy work. You will want your finish work; painting, trim, caulking, windows and doors to look excellent when you have finished. Time for a bit of honesty - do you have the skills to do that? If not, can you force yourself to be patient while you learn? It’s far better for you in the long run to caulk your kitchen twice or even three times, than to do low-quality work. Remember the saying the devil is in the details? When you get ready to sell or refinance down the road, those little quality differences will make a very tangible difference in your return on investment (ROI).
Do you know the cost?
Speaking of return on investment, you will want to know ahead of time how much this is going to cost. What is the real purchase cost, including closing costs, fees, insurance and interest payments with your time-line before you improve anything. Next how much will those improvements costs? Consider materials, labor, professional fees from those such as architects. Then what it will cost to sell the property once completed. There are many spreadsheets available online to help you keep track.
Knowing all of this "after" an appraisal is very valuable when making your decision to purchase. The last thing you want to do is to place yourself into a negative equity situation. Remember the movie Money Pit? Funny movie, not as funny when you live it.
Have you calculated the risk?
It can cost more, take longer and sell for less than you think. Are you prepared for those potentials? Can you financially keep the property and pay on the mortgage until the market has righted in order to make a profit given the interest you will be paying doesn't eat it in the end?
If a fixer-upper has been on the market awhile and is still available, there might be a good reason. Look closely be careful and do your due diligence. Remember a good fixer-upper will sell fast.
It is always fun and exciting to float along in a cloud seeing your perfect dream home or amazing visions for a property. Always remember to keep a steadfast focus keeping distractions at bay and one toe on the ground for making smart financial decisions, these two choices will take you far in the right direction. For those that have done fixer-uppers, you hear tales about loving it or the despair of the project and how unhappy they were. It is something you love or hate - which side will you be on?