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Thursday, February 16, 2017

10 Questions to Consider Before Buying a Fixer Upper


Buying a home is almost always a stressful process, and buying a fixer upper can often have added issues that make it an even more difficult process.  Here are 10 things to consider when buying a fixer upper:

1.      How is the house being Sold?
             ⚬   Foreclosures on the Market (listed on MLS sites)- these properties are bank owned and sold as is.  Any problems that arise will be up to you to fix.  Many mortgage companies have minimum standards to get approved for a loan.  Homes that don't meet minimum standards wont be approved.  These homes often have been up for auction but the purchase price compared to potential resale price were too close for home renovation companies to be interested. We purchased our home while it was in Foreclosure on the Market.
       ⚬   Pre-foreclosure- This is perhaps the hardest time to purchase a home.  These houses are still technically owned by an individual but are in the process of being listed for Auction.  This means that the owner still has the ability to pay off the house and stop the foreclosure.  
             ⚬   Short sale- You can potentially get a great deal in Short Sale.  Often, homeowners who are having trouble paying their mortgage and are at risk of foreclosure negotiate with their lender to sell the house for less than what is left on the mortgage.  These types of negotiations can often take months and sometimes fall through (if the bank denies the sale or if the owner decides to keep the house). 
                Auction- many Foreclosure homes go on Auction before hitting the regular market.  These homes are often in the worst shape and need the most work, so are therefore the cheapest homes.  In our area, these homes are snatched up quickly by home renovation companies.  They also often require cash in hand.  Often it's hard to determine when and where these auctions are happening.
       ⚬  Regular Market (listed on MLS)- Fixer uppers on the regular market are often homes that are owned by aging owners or are starter homes and are typically only in need of upgrades.  The trick here is to recognize the cost of upgrades and use those costs to negotiate the price to account for those expenses.  Typically these negotiations can include price adjustments for floor replacement, roofing, moisture issues, and paint.  Purchasing a Regular Market home can be tricky because the price of upgrades might mean your investing more than the house is worth.  Always consider the home market values when considering this type of fixer upper.

2.    How are the “Bones” of the house? Some projects are easily DIY'ed while others require professional help.  Make a list of projects you are willing to do yourself and what you will need a professional to do.  Take that list and decide what projects you already know how to do and what projects you will need to learn to do (Youtube is a great resource).  
       ⚬   Structure- Are the walls, flooring, joists/roof structurally sound?
       ⚬   Membrane- What are the age and condition of roofing and insulation?
       ⚬   Foundation- Do the crawl space or basement show signs of cracks or moisture?
       ⚬   Electrical- proper wiring? up to code?
             ⚬   Plumbing- Are there any noticeable leaks? Is there adequate pressure? What type of pipe is                                  used? Also consider the age and type of water heater.
       ⚬   Heating/cooling- Age and type of furnace, air conditioner, or heat pump? 
       ⚬   Doors/Windows- What is their age and condition? Do they have good insulation and seal? 

3.      Are there Damages from Insects and/or other Creatures? These could be costly to repair and often illuminate other issues with the house.  Our house had small gaps in the connections between the soffits and roof which allowed a handful of squirrels to nest in our soffits.  In our case, they were easy to clean out and the squirrels hadn't caused any irreparable damages, but they could have easily caused unseen damages in the attic or roof had we not known what to look for.  Upon inspection we also found a few small areas of termite damage on interior walls which had previously been repaired.  Damage to structure or a current infestation need to be seriously considered before purchasing because the costs of repair can often add up quickly and can lead to unforeseen issues. 

4.       Is the Price worth it?-  This is perhaps the most complicated part of buying a fixer upper.  The tax assessed value of the house, the market value of the house, the market value of the homes around it (pre renovation and post renovation), and the market value of homes similar to it (pre-renovation and post renovation) are all important to consider. Consider also whether you have the money for renovations already or if you will be funding these renovations over time.  If you have a chunk of cash to fund all the renovations then kudos, but if your like the rest of us and you will be funding this a little at a time make sure that the cost of the house is low enough that you will be able to set aside cash each month to make additional repairs and renovations.  ** I will discuss how to find this information and compare it in more detail in a future post**

5.       What Projects NEED to be done? Needed projects include moisture control, roofing problems, electrical work, plumbing, insulation, and things that are needed to make the house livable. Landscaping, painting, upgrading appliances, adding trim and new fixtures all should be considered "Wants" and not "Needs" because they make the house aesthetically appealing but don’t affect the livability of the house.  It important to estimate the costs of the needed projects and the wanted projects separately and then prioritize projects based on their necessity.

6.      What are the Estimated Costs of Repairs? Some projects can easily be done DIY for a low
cost while others require greater upfront costs. Its also important to consider what needs to be replaced vs what can be restored.  Bathroom renovations can cost up to $6000 depending on the repair vs replace variables. Similarly, kitchens can cost upwards of $15,000 if all of the appliances, counter tops, cabinets, and flooring need replacing.  Restoring degraded kitchen cabinets and flooring can be a great cost cutter. Roofs can cost upwards of $10,000 and professionals hired by the hour (like plumbers and electricians) can often cost $85/hr. Replacement of doors and windows can cost up to $300 each.  Also consider the costs of adding or replacing insulation, repairing or replacing septic systems, hot water heater replacement, and air conditioning or heater replacement.  The costs can add up quickly!  

7.       Do you have a Renovation Timeline?  Set realistic goals.  If you’re planning to DIY many of the projects and living in your home during the renovation then it will probably take much longer than expected to do some projects. What things need to be taken care of before you move in and which projects can wait?  Often people have some length of time from the date of closing until they have to be out of their previous residence (for us it was 5 weeks until our lease was up).  That is a good time to complete many of the necessary projects to make your home livable.  

8.       Why do you want a fixer upper?  This is not a business that an naive can get involved in easily and most people that do this to make money end up losing money the first few times, so if you’re looking for a HOME don’t treat it like a business.  This could mean sacrificing some of the “entertaining guests” appeal and finishing that newer complete homes have.  It could also mean living with rooms that are partially painted or in mid-construction for often months at a time.  We lived with painters tape on our door knobs for 13 months and patched unpainted walls and ceilings from October 2015 until now. 

9.       What is the area like around the house?  Is the area up-and-coming or is it on a downward slope? Purchasing a home that is in an upcoming area means that your home value should increase in the coming years while purchasing in an area that is becoming increasingly blighted means you may have to wait longer to see your home value increase.  **I will discuss this more in a future post**

10.   Do you REALLY want this? Living in a fixer upper and doing the renovations yourself is not always fun, glamorous, or easy. Expect strain. Expect disruption. Expect unexpected costs. Expect the unexpected. 

Is there something you think I missed?  Is there a topic you'd like me to cover in more detail?  What are your thoughts and concerns about buying a fixer upper?  Share your comments below.  And don't forget to subscribe to posts in the top right of the page to get future post updates!


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