Ironically, the first thing to consider when buying any home is selling it! But it’s especially true when buying a ‘fixer-upper’. You’ll need to spend a lot of time and money to ‘fix it up’, so think ahead to the day when you will sell it to ensure you get back what you invested in it — and then some!
Here the top things to consider when buying a fixer-upper to get the highest return on investment possible:
Location, Location, Location
The age-old tip for fixer-upper buyers is ‘to buy the worst house on a good street’, and that’s still the best strategy. It almost guarantees you won’t overpay for a home. You can boost the value of a run-down home by doing small renovations that will bring it up to the level of its neighbours.
However, you may not be able to find an affordable fixer-upper on a good street if the market is hot. If so, look further afield. Drive around up and coming neighbourhoods that are close to upscale areas. If renovators are working in the neighbourhood, take a closer look at these gentrified areas.
Ask a real estate agent about the neighbourhood. The real estate history (recent sales and prices) of the area will tell you if investing in a fixer-upper is worth your time and money. A well-informed agent can advise you on the community, such as future property development, schools, safety and other factors that will influence your home’s future resale value. When making an offer, avoid a bidding war against a developer who wants to tear it down and build a new home because the location is so ideal.
Once you’ve found a desirable location, focus on the home’s configuration. The best layout is one that will appeal to the largest pool of buyers: a three-bedroom with more than one bathroom, ideally a Master ensuite and a guest powder room on the main floor. And four bedrooms are even better if you can afford it!
The home’s overall layout should flow. If not, it can be expensive or impractical to move walls. Bedrooms at opposite ends of the home will turn off buyers with young children. Kitchens with more than one entrance are desirable. Avoid houses whose dining rooms serve as the focal point of the home.
If, however, it’s in your budget to redesign your new home’s layout, a great general contractor will be able to create a custom design that will be ideal for both you and your future buyer’s families.
Get a Home Inspection, Then Hire a Service Pro
It’s always essential to get a home inspection, especially for a fixer-upper. An inspector will assess the functionality and safety of the property plus inspect the plumbing, electrical, HVAC system and exterior brick, roof and gutters/downspouts. In addition, ensure they inspect for pests such as beetles, termites, or carpenter ants. Make your purchase offer contingent on your approval of all inspections. Ideally, you’d like to be able to walk away from the deal without penalty if the inspection uncovers serious issues with the house.
If you’re looking at structural changes (building an addition, knocking down walls or excavating the basement) a home inspector doesn’t have the expertise required to advise you on the feasibility and cost of such major renovations. Hire a reliable general contractor to provide a written estimate of the work required to realize your vision before you submit your offer, time permitting.
Be Cautious About Recently-Completed Renovations
Some sellers do upgrades just before they put their house on the market to make it more attractive. But beware — a seller who has just created a finished basement may not have got the right building permits or took shortcuts on insulation and wiring, opting to focus on aesthetics instead.
Cosmetic Versus Structural Repairs
You will need to distinguish between cosmetic issues and structural problems. Less expensive cosmetic changes include:
- Painting including patching walls or stripping wallpaper
- Refinishing floors, or laying tile or carpet
- Replacing bathroom subfloors due to leaky toilet or faucets
- Replacing baseboards or adding trim
- Installing new light fixtures or ceiling fans
- Installing a single room air conditioner or ductless AC (not central air)
- Fixing broken windows
- Refacing or painting existing kitchen cabinets
- Replacing doors
- Changing out receptacles and light switches
Conversely, the following structural changes require a much bigger outlay, but the return on that investment may be very attractive:
- Replacing furnace
- Adding central air conditioning and necessary ductwork
- Removing load-bearing walls to create more space
- Shoring up foundations (possibly due to soil erosion from poor water run-off)
- Pouring concrete for driveways or steps
- Installing new windows throughout the house
- Complete remodel of kitchen or bathrooms
- Installing new custom-built kitchen cabinets
- Building a garage or addition
- Excavating basement to increase ceiling height
Unfortunately, many structural repairs are invisible upgrades (for example, electrical, plumbing and HVAC.) These costly projects don’t always increase a house’s value because they are naked to the eye of a potential buyer until they are flagged as significant issues by their home inspector. Also, many structural changes require a building permit and future buyers might request proof of permits as a condition of sale.
When buying any house, it is important to avoid swimming in debt, especially since interest rates are now rising gradually. Fixer-uppers are disruptive, stressful and time-consuming, so it is imperative to have a solid financial plan in place prior to purchase. Also, consider your family’s lifestyle needs during the reno — will you be living onsite or elsewhere during the demolition and reconstruction?
When buying an older home, you never know what’s behind the walls. Your budget should have a large contingency to deal with the inevitable surprises or new ideas that are conceived once the reno has begun.
If you’re up for the challenge of buying a fixer-upper and transforming it, the return on your investment can be tremendous. Of course, finding the right home service professionals is the key to any home improvement project. HomeStars can help you find the best home inspectors and general contractors to make your fixer-upper project a great success! Click here to submit a request for your project to great professionals in your neighbourhood today.