Let me start by saying that I own rentals, invest in real estate, and have flipped homes, so I’m not against these strategies. I simply want to explain how they vary for each person.
Most home shoppers who said they “want a fixer upper” don’t want to buy a home that isn’t in ideal condition, spend tons of cash on renovations, and live in a construction zone. What they usually mean is that they would like to get a deal that will reap a bountiful return on investment, and they often think they can put in the work to create more value in the home.
I suspect if someone found a move-in-ready home worth $200,000 for only $160,000, then he or she would take that deal over a home that needs repairs. Sure, there are some who truly enjoy large-scale projects, but they’re the exception and not the majority who are looking for fixer uppers.
While I understand there is a chance to create a lot of equity with a fixer upper, there are questions you should consider.
Ask yourself, “Can I risk the cash I have for the renovation?”
Another thing TV shows don’t emphasize is that home improvements are typically funded with cash. After you invest a lot of money into your fixer-upper, will the home appraise for the value you projected? Will you be able to get back the cash you put into it? If not, do you have enough cash pooled somewhere to take that kind of hit?
Ask yourself, “Do I desire to put out a lot of cash?”
In business, leveraging money is typically more ideal than paying cash. Financing things is sometimes just good business, while other times are out of necessity.
While there are loans that allow improvements to be financed along with the purchase, they come with additional costs and higher rates than standard loans. Additionally, these programs require a contractor who will get paid. So if you want to put in your own sweat to create more equity in the home, these programs are not for you.
Ask yourself, “Would I rather enjoy my home, or work on my home?”
Do you spend most of the week working like most Americans? If so, how valuable is your downtime?
In short, there’s nothing wrong with getting a “fixer upper,” but after the cash, labor and delays, a fair deal on a move-in ready home may be a better option.