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How to Buy a Fixer-Upper House – Save Money & Avoid Risks

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HGTV is teeming with shows about people who fix up old, damaged houses for a living. From “Fixer Upper” to “Flip or Flop,” “Good Bones” to “Rehab Addict,” these series show house after house transformed from an old wreck to a beautiful home. After binge-watching a bunch of these, you could easily find yourself thinking, “I bet I could do that!”

But before you go running out to buy yourself a fixer-upper, step back and take a reality check. Sure, buying a fixer-upper and putting some work into it can be a good way to get a great home on a budget – especially if you do the repairs yourself. But it can also be a good way to get sucked into a money pit that will swallow up your savings, as well as your free time, and still be hungry for more.

To decide whether fixing up a fixer-upper is really for you, you need to have a realistic idea of what the job involves. That means knowing how to estimate the actual cost of top-to-bottom repairs. It means figuring out whether your skills, your schedule, your budget, and your relationships can handle the strain. And finally, it means knowing how to get the best deal if you choose to take the plunge.

How to Determine the True Cost of a Fixer-Upper

One of the problems with all those reality TV shows is that they don’t go into much detail about costs. They focus on the drama: discovering a hidden problem, finding a creative solution, and finally unveiling a beautiful, transformed space.

But in real life, numbers matter. Before you even start fixing walls or picking paint colors, you need to know whether you can really afford to buy this house and do the repairs on it. Working out just how much those repairs will cost is a complex process with several steps – and each one can have a big impact on the final sum.

Step 1: Identify Future Repairs

To figure out how much it will cost to fix up your fixer-upper, the first thing you need to know is exactly what needs fixing. A good first step is to go over the house, room by room, and write down all the problems you see. However, that’s not enough by itself, because old houses can have a lot of problems that aren’t visible to the naked eye. For instance, you can see if the kitchen cabinets are outdated, but you can’t tell if there’s rotting plaster behind them.

To uncover these hidden problems, you need to bring in a professional inspector. This is a crucial step in the process. An inspector can uncover all kinds of issues that aren’t obvious, such as outdated wiring, water damage from leaking pipes, or termites. Inspectors can also do tests to see if the house contains any hazards like mold, radon, or lead paint.

Step 2: Double-Check Structural Issues

Sometimes, an inspection turns up major structural problems with the house. These are problems that make the house dangerous to live in. Examples include:

  • Damage to the foundation
  • Major plumbing or electrical problems
  • An inadequate HVAC system
  • Extensive damage to the walls, roof, or siding
  • Serious termite or mold damage

If you find problems like this, experts say, it’s probably best to walk away. Your fixer-upper is going to need major, expensive work to make it livable – and chances are, you won’t get most of that money back when you sell. Major repairs, such as a new electrical system, are “invisible”; they don’t show up in pictures, and they don’t raise the value of a house enough to pay for the work. So, unless the house is selling at a seriously steep discount, it’s unlikely you’ll ever get your money’s worth out of it.

If you decide you’re still interested in the house despite its structural problems, you need to take extra care to make sure you’ve found all of them and you know what they will cost to fix. Bring in a structural engineer to inspect the home and give you a complete write-up of all the problems that need fixing. Hiring a structural engineer costs around $500, but it’s a lot cheaper than discovering midway through a remodel that you need to replace half the foundation.

Step 3: Decide What to DIY

Doing repairs yourself is a lot cheaper than hiring a contractor to do them. Once you’ve figured out what repairs your fixer-upper needs, the next thing you need to know is how much of the work you can do yourself. The more you can do on your own, the less you’ll have to spend.

When deciding what you can do yourself, be realistic about your abilities. Some jobs, like painting or stripping wallpaper, are simple enough that even a DIY beginner can handle them. Others, like roofing or major electrical work, are far too dangerous for an amateur to attempt. Any job where a mistake could kill you, or cause major damage to your house, is a job that’s best left to the pros.

In between these two skill levels, there are lots of jobs that a skilled DIYer can do, such as:

  • Hanging cabinets
  • Repairing walls
  • Building decks
  • Replacing windows
  • Tiling
  • Refinishing floors
  • Putting on vinyl siding

You wouldn’t want to tackle jobs like this if you’re completely new to DIY. But if you already have some experience, or you have an experienced friend or relative to guide you, doing this kind of work yourself can save you a bundle.

However, even if you can handle a job on your own, that doesn’t necessarily mean you should. Some jobs are very time-consuming to DIY. Tackling them yourself could mean either taking time off from work or devoting every weekend to them for weeks on end – and living in a work zone in the meantime. Once you factor in the time and hassle involved, you might decide that it’s better to hire a pro and be done with it.

Double Check Structural Issues

Step 4: Estimate Repair Costs

There are lots of online tools that can give you a quick ballpark estimate on the cost of home repairs. At HomeAdvisor, you can enter your ZIP code and the job you want done to see a price range for your area. You can also ask friends who have had similar repairs done how much they paid. If you’re just trying to decide whether or not a house is worth looking at, this kind of rough estimate is good enough.

However, if you’re serious about making a bid on a house, you need a more accurate idea of what the repairs will cost. Find a good contractor to do a walk-through of the house and give you a quote on all the repairs that you’re not planning to do yourself. This is especially important for any kind of major structural repairs. Make sure you have a binding, written estimate on these before you make an offer.

Then, for the jobs you’re planning to do yourself, check home stores and websites to figure out what supplies you’ll need and how much they’ll cost you. Add together your contractor’s estimate and your DIY shopping costs to figure out how much it will cost, in total, to do the repairs on your fixer-upper.

Lastly, take that total and add on 10% to 20% more. That extra padding is to cover the cost of any unexpected problems that pop up once you start working on the house. Surprises like this almost always happen, so you need to plan for them in your budget.

Step 5: Calculate Permit Costs

Along with materials and labor, there’s one other cost you need to budget for: permits. A permit is an official authorization from your town government to do certain types of work on your home. Almost any addition or structural change to your home requires a permit. You’re also likely to need one for HVAC, plumbing, roofing, siding, or electrical work.

Permits can be pricey. Some towns charge as much as 1% of the total repair cost. It can also take as long as six weeks to complete all the inspections required to get a permit. Sometimes, inspectors force you to do extra work or change the way you carry out your project before they’ll give you one.

It’s tempting to sidestep all this cost and hassle by doing the work without a permit, but that’s a mistake. When it comes time to sell your fixer-upper, you’ll run into problems if you don’t have the proper permits on file. A bank could even refuse to give buyers a mortgage loan on a house that was remodeled without a permit.

To avoid these problems, check with local officials to see which of the repair jobs on your list require a permit, and how much it costs. Add that cost to the total you came up with in step 4.

Also, ask what the process is for getting a permit. If it turns out to be a major hassle, you might decide it’s a job you’d rather leave to a contractor. This, in turn, could end up bumping some jobs out of the DIY category and over to a contractor – which will further increase your costs.

Step 6: Check Financing Costs

At this point, you have a good idea how much the repairs on your fixer-upper will cost. And chances are, you don’t have enough cash saved up to cover all of them. So, you’ll need a loan to pay for the repairs, as well as for the house itself. You need to learn how much these loans will cost you per month to decide whether your budget can handle it.

If the cost of the repairs is minor, you can put it on your credit cards. This option is simple, and it has no up-front costs, such as appraisal or origination fees. On the downside, credit cards tend to charge high interest if you need more than a month to pay it off – and there’s no way to deduct that interest on your taxes. If you plan on paying off the cost right away, however, you can earn valuable cash back or travel rewards by using a credit card.

A better option for most buyers is a renovation loan. One particularly useful type is a section 203k mortgage loan, which lets you borrow the money for buying and restoring the house all in one package. This is simpler than applying for the two loans separately and can allow you to borrow more.

Section 203k loans are also backed by the Federal Housing Administration (FHA). Because of this, lenders are usually willing to offer lower interest rates on them. They’re also open to borrowers who don’t have a good credit rating. However, there’s a limit to how much you can borrow with them.

The best way to find out how much this kind of loan will cost you is to go to the bank and get preapproved for one. In addition to the monthly cost of the loan or loans, figure out how much cash you need up front for the purchase. You’ll need a big enough lump sum to cover the down payment and closing costs without completely draining your savings. Otherwise, all your money will be tied up in the house – a house you probably won’t be able to sell until the repairs are done.

Check Financing CostsQuestions to Ask Beforehand

Obviously, you don’t want to take on the job of fixing up a house unless you know you can afford it. But that isn’t the only thing you need to know. Fixing up a house is a major undertaking, and you need to be sure you’re up for the challenge. Before you make a bid, there are several questions you should ask yourself to figure out if a fixer-upper is the right house for you.

Question 1: How Big Are the Problems?

Problems with houses come in two forms: cosmetic and structural. Structural problems, as noted above, are the ones that affect the way a house works. They’re big and expensive, and it takes a contractor to fix them – and they don’t pay you back much when you sell. That’s why it’s often better to walk away from a house that needs a lot of structural repairs.

Cosmetic problems, on the other hand, are only skin-deep. They’re things like peeling paint, cracked tiles, damaged drywall, a dated kitchen, or a dead lawn. They don’t make a house unlivable – just unappealing. These are the kind of things that make buyers wrinkle their noses and turn away.

A house with lots of cosmetic problems is a great house to fix up. That’s because these are the kind of home improvements that add value. They’re usually cheap to fix, and they make a big, visible difference when it comes time to sell the house. So, if the fixer-upper you have your eye on needs new carpets, lighting fixtures, and windows, but no major structural repairs, it’s likely to make a good investment.

Question 2: How Does the Housing Market Look?

In general, cosmetic fixes pay you back well when it comes time to sell. However, there are exceptions to this rule. For one thing, it doesn’t pay to fix up your house so much that it becomes too fancy for the neighborhood.

Buyers aren’t likely to go for a $400,000 house on a street full of $300,000 houses. If they have $400,000 to spend, they want to buy into an area full of other homes worth $400,000, or even more. Zillow says a good rule of thumb is to avoid raising the value of your house by more than 10% above the average price for your neighborhood.

It also pays to look at the overall trend for housing prices in the area. If housing prices have risen sharply in the past few years, that seems like a good sign – but it can actually be the opposite. It could mean that housing prices are nearing their peak, and by the time all your repairs are complete, they’ll be on the way down. You could put months of work and tens of thousands of dollars into fixing up your house, only to find that it’s not worth as much as you spent on it.

Question 3: Do You Have the Time?

Fixing up a house is a huge time commitment. It can easily eat up all the free time you have, and then some. If you’re a hardcore DIYer and there’s no way you’d rather spend your time than hanging drywall, that’s no problem. But if you can’t stand the thought of spending every weekend up to your elbows in joint compound, this isn’t a job for you.

Even if you’re not planning to do most of the work yourself, rehabbing a house still takes time. You need to:

  • Learn What Each Job Involves. Before you even start hiring contractors, you need to have some idea of what you want them to do. That way you’ll be able to tell whether their bids really cover all parts of the job.
  • Get Multiple Bids. Next, you need to get bids from contractors. Experts recommend getting at least three bids on every job. That lets you compare prices and see if they’re reasonable.
  • Check References. You also want to make sure the contractor you hire is reliable. That means asking for and checking out references from other customers. Ideally, you should also go and look at examples of the contractor’s work.
  • Supervise the Work. Even after you hire a contractor, your job isn’t done. You need to keep an eye on the work to make sure it’s being done the way you want. For a big remodel, you could spend months or even years checking up on one contractor after another.

The bottom line is, no matter who does the work, you’ll have to devote a lot of time to it. If you’re not willing to give up your daily trip to the gym or weekly date night, it’s probably not for you.

Question 4: Can You Handle the Extra Expenses?

You’ve already worked out the cost of buying the house and doing the repairs. But working on a house brings a lot of little expenses too. For instance:

  • If the fixer-upper is going to be your main home, you’ll have to pay rent on another place while the work is being done – or else be prepared to live in the middle of a work zone.
  • You’ll need to take days off from work to work on the house, or to meet with and supervise contractors.
  • If you have kids or pets, you’ll have to pay someone else to watch them while you’re working on the house.
  • You’ll need to spend more money eating out, or ordering in, during the time you don’t have a working kitchen.

Make sure your budget has enough wiggle room to handle these extra expenses, along with the repair costs. If you’ve already budgeted every penny to pay for the house and the repairs, you’re going to run into problems.

Question 5: Who Will Help You?

Fixing up a whole house isn’t a job to tackle on your own. If you’re part of a couple, it makes sense to do the work together. But first, you need to be sure your relationship is strong enough to handle it.

Buying a first house is always a stressful experience. Make that house a fixer-upper, and all that stress is doubled. You’re putting in hours of hard work, week after week. You’re also straining your budget to the max to pay for it all.

A rehab also means living with uncertainty. You never know just how long a job will take. New problems keep cropping up without warning, and you have to drop everything and deal with them. Plus, if you’re living in the house during the process, you add the stress of living in chaos for months on end.

Putting that kind of strain on a new relationship is probably a mistake. You’re still learning how to live with each other, but the way you’ll likely be living is nowhere close to normal. It’s better to wait until your relationship is settled and stable before tackling a project this big as a couple.

If you’re single, you still need other people around to help you through your project. Helpers do more than just provide an extra pair of hands. They can also share their knowledge and give you new ideas about the best way to approach a job. And, once you start the work, they can keep an eye on you to make sure you’re not skipping steps or using the wrong material.

However, you need to choose your helpers wisely. Look for people who have good DIY skills and can be trusted to do the job right. If you ask a friend to help you install a window and they drop it and break it instead, that could be the end of a beautiful friendship.

Get Best House Deal

How to Get the Best Deal on the House

Suppose you’ve gone through all the steps above, and you feel sure you can handle this fixer-upper. You know how much work it needs, what it will cost, and where you’ll get the money. You’ve cleared your schedule and lined up people to help you.

Now, all you have to do is close the deal. Here’s how to get the best deal possible and avoid getting burned.

Find the Right Price

If you’ve done your research, you can easily figure out what’s a fair price to pay for your fixer-upper. It’s a four-step process:

  • Check the Comps. First, figure out what the house would be worth if it were in good shape. To do that, look at similar houses in the neighborhood that have sold recently – known as comparables, or “comps” for short. The average price people have been paying for these houses is a good measure of how much you could get for yours once it’s fixed up. You can get a quick estimate of local house prices by searching sites like Zillow. However, you’ll get more reliable figures if you ask a real estate agent to check the comps for you.
  • Compute Repair Costs. Next, calculate how much it would cost to have all the repairs on the house done professionally. Maybe you’re planning to DIY most of them, but that’s just substituting your own time and labor for cash. Figure out what the repairs would cost for a buyer who was planning to have everything done by the pros. That way, any money you save by DIYing can go into your pocket.
  • Calculate the Hassle Factor. It’s not always possible to live in a house while renovations are going on. Even when it’s possible, it’s not very comfortable. It’s customary to knock a little money off your bid to account for this “hassle factor.” To calculate it, first figure out how much time you expect the repairs to take. Then work out how much you’d pay in rent to live somewhere else while the work is in progress.
  • Do the Math. Take the final value of the house and subtract the repair costs and hassle factor. The total you come up with is the fair market value of the home, as is.

Bargain With Sellers

Unfortunately, that fair price isn’t necessarily the price the seller is asking. Sometimes, it’s hard for owners to see what bad shape their house is really in. To them, it’s not some old wreck – it’s their home.

To convince the sellers to lower their price, be gentle with them. Start by saying you love the house – but you’ve noticed some problems with it. Show them your figures to give them an idea of how much it will cost to bring the house up to date. The more detail you provide, the more sense your lower offer will make to the sellers.

Cathy Baumbusch, a Washington-area realtor interviewed for Realtor.com, says this method works. In many cases, she says, fixer-uppers sell for just 60% to 80% of the original asking price. Sellers tend to be more willing to make a deal if the house has already been sitting on the market for a while. They’re also more likely to settle for less if you offer them cash up front.

Protect Yourself

Even once you’ve talked the sellers down to a fair price, there are still two ways the deal could turn out badly for you. First, you might be turned down for your renovation loan, leaving you on the hook to buy a house you can no longer afford to fix. And second, once you’ve bought it, you might discover that the house has some problem you didn’t know about, and your repair budget won’t cover it.

Fortunately, there are ways to protect yourself from both of these problems. All you have to do is write a couple of contingency clauses into your purchase contract. A contingency clause is a condition that has to be met for the deal to become binding.

First, you need a financing clause. This gives you time to apply for and get a home loan. If you’re not able to get one, you can back out of the deal and get back any money you’ve already paid. Make sure your financing clause covers all the money you plan to borrow – both for the mortgage and for the repairs.

Second, you need an inspection clause. This gives you the right to get a full home inspection, if you didn’t already do this before making your bid on the house. If the inspector finds any problems you didn’t know about, you can then go back to the sellers and ask them to either make the repairs or give you extra cash at closing to pay for them. And if they refuse, you have the right to walk away.

Keep in mind that a contingency clause cuts both ways. If you find a problem the sellers aren’t willing to fix, they can decide to back out of the deal, just as you can. In that case, you’ll have to go back to the beginning and try to find a new fixer-upper to turn into your dream home.

Final Word

Buying a fixer-upper isn’t a project to undertake lightly. It will eat up a lot of your time, as well as a lot of your money. And once you close on the house, you can’t just back out if you decide it’s too much for you. You’re in it for the long haul, which could turn out to be months, or even years.

But if you’re willing to put in the effort, a fixer-upper gives you a chance to own a dream home you’d never afford otherwise. And in some ways, it’s even better than just buying a home that’s already perfect when you first walk in the door. Putting in all those hours of work to fix up your fixer-upper makes it uniquely yours. When the work is finally done, you’ll have more than just a beautiful home – you’ll have something you put your heart and soul into.

Have you ever bought a fixer-upper? If so, what advice would you give to someone else about buying one?

Amy Livingston
Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

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