Home Series: Should You Buy A Fixer-Upper? – Consult with Bruce Coleman, Vancouver Mortgage Broker
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Should You Buy A Fixer-Upper?
A home that has become rundown and poorly maintained can be either a great opportunity or a dreaded money pit if you aren’t careful.
Some people love older homes and you are very likely to snap them up at below market price, and spend time and money on renovations which can greatly enhance the value when you are finished.
This sounds good in principal and can often be very advantageous, but there is the other side of the coin that can bleed you financially dry if you don’t choose wisely
Figure Out the Costs Beforehand
It all boils down to dollars and cents. You need to do the following before you take the plunge when buying a fixer-upper. The offer you should make depends on the comparable real estate value of reasonably well maintained similar homes in that particular neighbourhood minus the costs of renovating the home.
The key is to be somewhat more liberal than conservative when making these estimates and you might add as much as another 5-10% on top to account for additional costs resulting from unexpected problems.
Always Use a Home Inspector
Although you might be fairly knowledgeable about home construction, there can be many issues you might easily overlook which can really hit your bottom line. A qualified licensed home inspector can help you more readily pick out the faults of the home and pinpoint what requires maintenance and expensive major renovations. You can also use the results of the home inspection when it comes to making a more equitable offer.
Which Fixer-Uppers should you Avoid?
Many renovation projects have a good ROI but some do not because the problems encountered are not visible and add little to increasing the overall market value of the home.
You should avoid any fixer-upper which has foundation problems. These are very expensive renovations and do not markedly add to the market value. Other problems which center on old electrical and plumbing problems should also be a red flag because these are also expensive renovations that do not significantly increase the market value. Another type of fixer-upper is one which might require a major addition such as an additional bedroom or family room because they also do not have a spectacular ROI.
Which Fixer-Uppers Pay Best?
The best fixer-uppers are ones that largely need cosmetic improvements, because these types of renovations do have a good to excellent ROI. This could include both minor and some major cosmetic renovations depending on your budget and the condition of the home.
You can include some cosmetic and some minor structural renovations such as including a skylight if you have to replace the roof. The key is not to over-improve the home above and beyond how it fits into the neighbourhood and how it affects the market value of the home.
Both major and minor cosmetic improvements could projects such as a partial or complete kitchen and/or bathroom renovation. Other improvements can include replacing old or tacky fixtures, redoing the floors, adding newer and more energy efficient doors and windows, outdoor siding, a deck.
Homes seem to add more value when they are visually renovated because they have more appeal to buyers.
You can save a lot of money if you are skilled at DIY projects, but remember that you should do the project right.
