The Nuts and Bolts of Investing in a Fixer Upper
Buying your first home can be a daunting prospect for young people. As the biggest investment you’ve ever made, it represents considerable financial risk. Many first-time homebuyers looking for ways to soften the financial blow opt for a fixer upper, a house that needs some work to make it livable. Of course, the trade-off is that you’re committing to hours of renovations and upgrades. Ultimately, the objective is to create your ideal living environment from a house you purchase at a cost that fits your budget.
Going the fixer-upper route adds another degree of risk to an already risky proposition. That’s why it’s so important to understand exactly what you’re getting into, including the exact condition of the house you intend to rehab as well as the level of financial commitment you’re making. If you get it right, it can be one of the best decisions you’ll ever make.
Seeking the right property
The first step in purchasing any home is finding out how much of a mortgage you qualify for. The mortgage rate that lenders are willing to offer home buyers is based on factors such as income, credit score and the size of the down payment they’re able to make. However, even if you don’t meet the requirements for a standard mortgage, if you’re an active military member or a veteran, you may qualify for a VA loan if you have served for 181 days during peacetime, 90 days during wartime, or six years in the Army Reserves or National Guard. Be sure to know what you qualify for before you start looking for homes.
Whatever your budget, you’re not restricted to prowling the streets and alleys looking for decaying properties and jotting down addresses. There are many resources that can help you find just the right house. Do diligent research on the internet, checking local tax records, home sale prices and insurance information to get an idea of the kind of deal you can expect and what buying a fixer upper in your area may cost. Consult lists of local foreclosures, which usually can be found through your County Clerk of Courts office. If you’re comfortable with the auction format, you can also find great deals by bidding. Before you pursue a home in earnest, consult a realtor who has experience dealing with compromised properties.
Getting a professional inspection is essential if you’re considering purchasing a house that will need a lot of work. Listen carefully to what the inspector has to say about your property. Being objective and honest with yourself at this stage can mean the difference between a house that can be a home and a money pit. The structure, foundation, roof, HVAC system, electrical and plumbing systems should be carefully scrutinized. If the inspector does raise red flags, take your concerns to the seller to see if they’re willing to make concessions on the asking price.
If the inspection reveals that the roof is in dire need of repair, you may be able to negotiate a lower price for the home. Roofing isn’t a DIY job, however. You’ll need to work with a reputable roofing repair company with the experience to get the job done right at a price you can afford. It’s a worthwhile investment: a new roof can increase the value of your home by as much as 40 percent.
Flooring is often one of the first tasks to be tackled in a fixer upper. You have a couple of options: you can try to repair the existing floor or, if it’s a total loss, you have an opportunity to start over and go with the flooring you’ve always wanted. Hardwood is an attractive option, and can be rehabilitated by sanding and restaining. If you know what you’re doing, you can end up with a hardwood floor that looks as good as new. Tile is another attractive flooring option, though installing tile can be more difficult than dealing with hardwood. It requires mortar or thinset, which attaches the tile to the sub-floor and grout to fill in the spaces between tiles.
Flooding is often a problem in old homes with a basement. If your new home doesn’t have a sump pump, you’ll need to have one put in, especially if you live in an area that gets a lot of rain or has a high water table. If you’re unable to connect to sewer lines, you’ll need to have a septic system that processes wastewater.
Whether you decide to stay or sell once your home has been repaired is dependent on several factors, including the neighborhood, the size of your mortgage, the ability of the owners to maintain the property, and the cost of your renovation versus the cost of purchasing a new home. Be sure to add up the total cost of fixing a house and compare that total to the price of buying a new home.
If you’ve decided to purchase a home that needs a lot of work, seek out the advice of your realtor and your home inspector. They can help you determine whether you’re equipped to handle the work.
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