I seem to have a few clients currently who are looking at that fixer-upper property. They, like many people, especially first time home buyers, want to be able to get a place that they can renovate and increase the value and make a great return. It can be an irresistible idea if you think about. Buy that older, outdated, run down home in a great area for a rock-bottom price, work on it and get twice as much as you paid for it. You can see that appeal can't you? Quite often, it is a good idea. But there are some things all people wanting to go down this road should be educated about.
1. Be realistic, educate yourself and crunch your numbers. You need to have a solid understanding of the costs of renovations on the property, what the neighbourhood market is and of course, how much money you can afford to put into the place. With this, the first thing you need to do is throughly assess the condition of the house. Always over-estimate the costs of renovations as well because odds are, there will be surprises once you start tearing down walls.
Take the number that you came up with and subtract that number from what Real Estate on comparable properties is going for, and this is where you should start with your offer. And whatever you do, include an inspection clause in your offer. Best case scenario is that this will assure you that the house is a good investment. Worst case scenario is that it will help you back out of the deal if you've determined that it is a complete lemon that is not worth your time or money. Depending on what the inspector finds in the home, you can always use that to negotiate the offer down as well. The one thing you don't want to find are structural problems because these often require major repairs and improving them won't be reflected in your re-sale value.
PRO: You could increase the value of your home simply through renovating the bathroom or kitchen, especially if you snagged it below market value.
CON: You could easily go over budget. The inspector could find one problem and that leads to another, and another and some repairs can't even be done until another is completed and so on. It could, in the long run, cost you a lot more than market value.
2. Pick the right property. The ideal fixer-upper requires mostly cosmetic changes - removing panelling from the walls, changing carpeting to hardwood, updating a kitchen or bathroom, lighting, doors, siding - these cost less and often are the repairs that will see the most return on your investment when you go to resell your property.
Adding on to a house can often leave you overpaying. The exception to this is a bathroom. Adding a bathroom can sometimes pay you back as much or more than the actual renovation. Also, as mentioned, structural improvements that are necessary (and costly) often lead to little or no return on the investment. However, you could do cosmetic improvements at the same time as you do structural improvements if it works well. These include a skylight perhaps as you replace a roof or a bay window while replacing wall rot.
Again, you want to avoid the "over-improvement" and to do that, you need to pay attention to the market in the area. If the market in the area is showing homes around a specific price point, adding in those granite counters and heated floors may be an over improvement that you would have problems seeing back on resale.
PRO: You could have your home your way. You'd be able to put your personal stamp on the property and make it feel exactly the way you want it to, flow the way you envision and have the finishes you've always wanted.
CON: You might get stuck with it. If the market or your circumstances turn, you may be stuck with this home because you just can't get out of it what you thought you could with what you put into it. Also, if this is in fact your first home or one that you know you're not planning on living in long-term, you need to make it comfortable for you but remember that whatever improvements you make, are for its future investment potential.
These are just a few things to keep in mind when looking for that fixer-upper opportunity. If it seems like an opportunity to good to be true, it may be just that. Do your homework, do your math and talk to your realtor.
If you want to learn more about this, I'd be happy to talk to you. Also, if you're thinking this is the direction for you, there are many homes in the area that fit this bill. I can help walk you through the entire process.
Century 21 Choice Realty
Sault Ste. Marie, ON