How to identify, Purchase, and Upgrade a Fixer-Upper

Fix-and-flip home remodeling TV series has contributed to the growing popularity of buying and refurbishing fixer-upper properties; nevertheless, not everyone is suited for large-scale renovation projects.

In fact, according to Report 2021, only 15% of homeowners felt their house needed significant updates, and only 4% stated a whole makeover.

Purchasing the least desirable house on the block and managing its renovation is known as buying a fixer-upper. When purchasing a fixer-upper, there are several factors to take into account, including the cost of the property, the construction, and financing, depending on whether you’re looking at it as an investment and intend to sell once construction is over or whether you’re remodeling it to make it your own.

What is a house that needs work?

A fixer-upper is a house that need some repairs, but not enough to make it unusable or deserving of demolition.

Fixer-uppers appeal to buyers who want to maximize their purchasing power or investors who want to flip the property and make a profit because they are typically offered for less money than homes in better shape.

Do I want to purchase a fixer-upper house?

The main reason why individuals purchase fixer-upper properties is that the overall cost of the purchase plus renovations may be cheaper than what they would spend for a comparable, well-maintained property.

Here are a few main factors that influence a buyer’s decision to purchase a fixer-upper:

Lower cost

You might be able to find a better deal buying a fixer-upper in your preferred area and remodeling it rather than buying an already-updated home if you have your eye on a popular neighborhood, either for your own lifestyle or for resale potential.

Adjustable enhancements

Regarding fixtures and finishes, the options are endless when buying a fixer-upper—as long as they stay within your budget, of course. For purchasers who have very specific tastes or who want more control over their home’s appearance, renovating a fixer-upper can be excellent. You can avoid paying for renovations that someone else completed when you purchase a fixer-upper, especially if you don’t like them.

Vintage charm of a home

Older homes have a certain charm that is difficult to recreate. Purchasing an older house that needs work can let you update it to meet modern efficiency, safety, and comfort standards while preserving and restoring period elements.

Turn a profit

Depending on the improvements you make, you might be able to make a healthy profit whether you want to flip the house or stay in it for a few years before selling. The types of renovations you undertake, the materials you use, and the caliber of the job will all affect your return on investment. If making a profit is the main objective, choose popular home upgrades in your neighborhood to raise the value of your property and draw in a diverse range of purchasers.

Tax breaks

Purchasers who purchase a fixer-upper and make renovations to increase the home value may be eligible for a tax abatement or credit in certain metropolitan regions, such as Philadelphia and Cincinnati.

Finding fixer-upper properties

The key to finding the ideal fixer-upper is knowing where to search. These are some methods for locating the ideal house.

To find homes that are below market value, conduct an internet search. Use search terms like “needs work,” “fixer-upper,” or “TLC” to focus on certain properties.

Work with a buyer’s agent: A buyer’s agent in your area should be able to assist you in locating fixer-upper properties in the communities of your choice. Through word of mouth, well-connected agents could even be able to show you houses that haven’t even been listed for sale.

Look up short sales, foreclosures, and auctions: Even if a distressed property’s structure is sound, it may be sold for less than its market worth in order to be cleared out swiftly. Remember that these properties are typically sold “as is,” meaning that disclosures may not be provided. Make sure you budget extra for unforeseen costs.

Things to consider before purchasing a fixer-upper

Prioritize features that you cannot alter, such as a home’s location, or that would be too expensive to alter, such as extensive structural upgrades, while looking for a fixer-upper. Here are important things to think about:

Whereabouts

Since location is immutable, it is the most crucial feature to search for. To optimize potential resale value, look for a fixer-upper in a desirable or emerging community. Choosing the ideal location for your property can also guarantee your happiness there. Take note of factors that may be significant to you, such as commute times, park and restaurant locations close by, and school rankings.

The location of the house will also affect how much you spend on renovations and how much it will be worth after they are finished. If you want to recover costs from a resale, the modifications and finishes you choose should be on par with similar homes in the same community.

Dimensions and arrangement

You may be able to rearrange the layout of a fixer-upper, but be mindful of any design and layout concepts that call for tearing out load-bearing walls. This is not always feasible and might be an expensive exercise. In addition to being costly, adding on to a home to expand its square footage may not be permitted in certain areas due to zoning regulations.

Domestic circumstances

A fixer-upper and a house with serious structural flaws are not the same thing. The cost of fixing structural and mechanical issues is far higher than that of cosmetic issues. Even if you’re buying a house as-is, it’s still important to engage a home inspection to learn about the advantages and disadvantages of the property. For a fixer-upper, the following items need to be on your checklist for a house inspection:

• Strong foundation
• Up-to-code electrical
• Proper plumbing
• Solid roof condition (should come with roof certification)
• HVAC and/or central AC
• Functional windows
• Straightforward cosmetic updates

Give top priority to houses with worn-out or antiquated finishes that aren’t appealing to most people but can be easily and reasonably updated. The fixer-upper you purchase should ideally simply require cosmetic improvements. Seek for residences that have:

• Peeling or dated paint (interior and exterior)
• Older bathroom fixtures and tile
• Dated kitchen cabinetry
• Laminate or tile countertops
• Stained carpeting
• Hardwood floors in need of refinishing
• Leftover belongings or trash that need to be removed
• Neglected landscaping
• Old or non-functioning appliances

Purchasing a fixer-upper

Purchasing a house that needs renovations might be dangerous since you won’t be able to fully assess its condition until you begin pulling down walls. It is crucial to conduct thorough research on the property and surrounding area in advance for this reason.

Obtain a professional house examination.

A contingency for inspections should always be included in an offer for a residence. If the inspection uncovers significant concealed flaws in the house, you have the option to pull out of the agreement and receive your earnest money deposit returned.

Homes that are advertised as being in “as-is condition” can still be examined; the seller of an as-is home is merely indicating that they do not wish to undertake any repairs in light of your findings.

Depending on the size of the home and your region, an inspection might cost anywhere from $250 to $700, which is the buyer’s responsibility. You may choose to have specific inspections done for problem areas in addition to a general examination. Specialty inspections for lead-based paint, radon, vermin, sewer lines, and structures are frequently performed. Specialty inspection costs are comparable to those of general inspections.

A structural examination not only determines whether the home is structurally sound but also alerts you to any potential natural risks that may affect the home’s worth as a whole or your personal health and safety. Before you submit an offer, you might also think about having a structural engineer evaluate the property. It may save you thousands of dollars in future foundation repairs, but it will set you back between $500 and $700.

Engage a general contractor and architect.

An architect may design a new floor plan for your house, produce drawings and plans, and advise you on what is and isn’t feasible. An architect is required in certain cities where obtaining a dwelling permit requires submitting architectural blueprints. Depending on the size of your project, an architect can cost anywhere from $5,000 to $5,000 on average.

Although your home inspector isn’t the one conducting the work, it’s better to get a more precise quote from a contractor. They should be able to offer you an approximate estimate of what it would cost to adequately repair problem areas that come up during an inspection. Include a 10% contingency in your price to account for unforeseen issues. Make careful to obtain quotations from several contractors and exercise caution by verifying their licenses and client testimonials.

The amount allotted for upgrades

Make sure, in collaboration with your contractor, that your budget accounts for all relevant expenses. Remember to include:

• Permit costs, if relevant
• The price of supplies, such as paint, flooring, lighting, countertops, cabinets, and hardware
• Labor costs, including those for inspectors, general contractors, plumbers, and electricians
• Cost of living while renovations are underway, assuming the house is unusable for the duration of the work

Recognize your boundaries

Beyond money matters, you should assess your willingness to undertake a significant remodeling job, particularly if you intend to do some of the work yourself to save costs. Renovating your home is not as simple as it seems, especially if it’s your first time, a lot may go wrong. A large-scale building project is a lot of work, even under the best of circumstances. You’ll have to pay all of the carrying costs for the house even if you have to temporarily relocate or live in a construction zone.

Options for financing using loans for fixer-uppers

With a regular conventional loan, you can buy a fixer-upper and then pay for all the improvements yourself. Alternatively, you might take out a mortgage for a fixer-upper, which is intended to help you pay for both the house and the improvements. Typical home loan kinds for properties that need work are:

FHA 203(k) requirements

A primary house can be purchased and renovated with the help of an FHA 203(k) Standard loan. The following are the essential conditions:

• A minimum credit score of 500 and a 10% down payment, or a minimum credit score of 580 with a 3.5% down payment
• The entire loan amount must not exceed the local FHA mortgage limits.
  Although structural work is permitted, no luxuries such as pools are allowed.
• requires a HUD consultant to manage contractor payments, approve architectural plans, and examine inspection results to make sure the house satisfies energy efficiency and structural integrity requirements.
• The amount of time you can resell anything is limited (not within 90 days)
• The money from an escrow account that is overseen by the lender

Simplified FHA 203(k)

This financing option is intended for smaller, cosmetic repair projects because it has a spending cap, but it contains requirements that are comparable to those of the FHA 203(k) Standard.

• A minimum credit score of 500 and a 10% down payment, or a minimum credit score of 580 with a 3.5% down payment
• For aesthetic enhancements costing less than $35,000.
• The amount of time you can resell anything is limited (not within 90 days)
• The money for the contractor comes from an escrow account that the lender oversees.

HomeStyle credit

A Fannie Mae-guaranteed HomeStyle loan combines a mortgage with a home improvement loan.

• A minimal down payment of three or five percent, contingent on owner occupancy, first-time home buyer status, and income, and a minimum credit score of 620 are required.
• permits additional additions such as swimming pools and landscaping that aren’t covered by an FHA 203(k); nevertheless, keep in mind that all modifications must be “permanently affixed to real property (either dwelling or land)”
• The money for the contractor comes from an escrow account that the lender oversees.
• The use of a certified contractor is required.

Selective Renovation

A CHOICERenovation loan, which is backed by Freddie Mac, combines a house loan with an improvement loan.

• Renovations up to 75% of a home’s worth can be financed.
• It is possible to utilize money for improvements that stop natural disasters.
• DIY the project and receive a credit for a down payment.
• has to be appraised more than once to make sure you’re following the conditions of the agreement and that the agreed-upon improvements bring the home up to the estimated worth.