Should You Buy a Fixer-Upper? 3 Big Things to Consider
Ah, the siren song of the fixer-upper. You click through the real estate listings, despairing of ever finding your dream home at a price you can afford without eating ramen every night for the next 30 years, and then you see it: the perfect house in the perfect neighborhood for a heart-stoppingly low price.
Of course, you know the drill. This one's got to be a "handyman special," or maybe a foreclosure that will take months to close.
While it's true that you can snag an older or neglected home for a great price, is a fixer-upper right for you? There are trade-offs that come with that affordable mortgage payment, and you'll definitely have to spend some money to get that dated house up to snuff before you settle in and call it home.
Here's what to consider before pulling the trigger on a fixer-upper:
Cost of Renovations
Sure, on the surface it looks like you're saving thousands of dollars by buying a house that needs some work. The thing is, all that work is going to cost money. If you're serious about a house that's gotten under your skin, make a list of everything that you know needs to be repaired or replaced and hit up Google for ballpark figures on the costs. Is it a number that you can handle? Do you end up saving money over a new home, or do you just break even?
Next, how will you pay for the work? If you won't have cash on hand after your down payment, how will you finance it? Will you have enough to pay off your credit cards or other loans? Don't forget that new mortgage payment, too!
Time Is Money
They say that time is money, and it's definitely true about a fixer-upper. If you can live in the house as-is and tackle repairs slowly over time, your ability to afford the renovations improves because you can spread the costs out. Pay for things as you can afford them, and you'll avoid piling up debt. If the house has safety or structural issues that must be resolved before you even move in, you'll be taking on a lot of responsibility before you enjoy any of the benefits of homeownership.
Also, consider how long you plan to stay in the house. If it's your "forever" home, you have a long time to earn back the money you invest on improvements. As your property value rises, you'll be paid back. If you're thinking of a starter home or may need to relocate in a few years, you might not make the money back before you sell.
Doing the Work Yourself
Finally, do you have any home improvement skills to fall back on? (Watching HGTV doesn't count.) If you're reasonably good with a hammer and nails or know your way around a paint roller, you're automatically empowered to take on some of the challenges of a fixer-upper yourself. If you have a good friend or relative who can teach you even more skills (plumbing and electrical are good ones!), you can do a lot of the work yourself. But be honest: If you don't know what a Phillips head screwdriver is — and don't want to learn — a fixer-upper isn't for you.
Think hard about these issues, and talk to your real estate agent. They've seen a lot of houses and know which ones are worth the effort — and which ones you should run from!