Rules for Buying a “Fixer-Upper” Property

Buying a fixer-upper can be a great investment, both in terms of buying one to live in and buying one for investment purposes to use as a rental property. Unfortunately, many novices assume that anything with “fixer-upper” in the description is a great choice, but realistically, that isn’t true. A fixer-upper property is only a good choice if it’s priced right, and the flaws aren’t too drastic.  

Look for Cosmetic Flaws – Not Structural Flaws

When you’re buying a property that needs work, it’s vitally important to distinguish between cosmetic flaws and structural flaws. Cosmetic flaws can be improved with relatively little cost to the homeowner, and don’t affect the overall property other than its appearance. For example, a home that needs new carpets and a new kitchen might have cosmetic flaws.

Structural flaws are much more serious, and can cost tens of thousands of dollars to repair; enough to sink any profit you have in the house, and lose you money. Structural issues include things like roof problems, mold problems, rotting floors or termites. Unfortunately, it can be extremely difficult to spot structural flaws, as many of them may be disguised under cosmetic flaws. It’s important to get a home inspection by a good inspector before you buy in order to make sure you’re not buying a property with structural flaws.

Pay Rock-Bottom Prices for Fixer-Upper Properties

The other mistake that buyers sometimes make with fixer-upper properties is buying properties at anything over rock-bottom prices. Fixer-upper properties need work. They typically need more work than you expect. If you pay too much for a fixer-upper, you’ll loose money after you’ve made the repairs. Find out how much it will cost to fix the issues, and then make sure the home price is discounted more than that from the home’s theoretical value.

For example, if it’ll take $20,000 to fix up a home valued at $200,000, make sure you pay less than $180,000 for the home. $160,000 is even better, because even if repairs cost more than you expect, you’re still unlikely to loose money on the property.

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Steve SchraderBachar is a local mortgage planning expert who resides in Iowa and provides service to the clients of his mortgage planning practice across the Midwest.  You can reach Steve at 1-515-289-4381 or 515-360-5197.