HOW TO MAKE A FIXER UPPER A PROFITABLE INVESTMENT
With increased buyer demand, homes needing a little TLC are going on the market, and regardless of how much fix up these homes require, they are selling quickly and sometimes at a high price. These expensive houses, which are listed with descriptions like a fixer-upper, TLC and needs work, are in competitive markets and rising in number.
Buying a fixer-upper home can be a nightmare, or it can be a profitable whopper of a deal. The secrets lie in choosing the right fixer-upper home to buy and getting the fixer checked out by a host of specialized inspectors.
Consider asking yourself these five questions before investing in a fixer-upper property.
1. How bad is it?
The severity of the problem can vary. Some properties may need just a few thousand dollars worth of paint job, while others may require a total overhaul. As might quickly conclude, the less work a property needs, the less risk you’ll have to incur if something were to go wrong during the rehab.
At the same time, however, the less work a property needs, the more competition you’ll face. Try to find properties that appear to need a lot of work to the general public, but may require only minor fixes. For example, homes sometimes have a bad smell because of pets, type of food cooked, or cigarettes and are a prime candidate because those smells are easy to rectify. An ugly exterior paint job or a bad roof is can scare away most potential homeowners but not very difficult to fix. So, before buying a fixer-upper, look at the what is wrong with the property and get a detailed estimate of what it will take to fix it up. Don’t get blindsided by surprise costs later.
2. Is it worth it?
Another key factor to keep in mind is that a fixer-upper is not automatically a great deal. If you bought a house of $300,000 and spent $100,000 in fixing it up – would you be better off than buying a home that did not require work for $400,000. When all other factors are kept equal, the finished house has an advantage. But if you got the same property for $250,000 and spent $75,000 fixing it, you can walk away with a handsome profit. Also, consider the time value of money as the time spent in fixing up the house could be spent doing something else more profitable. That leads to the next question.
3. Do I have the time?
No matter who is doing the work, a fixer-upper will take time. You may have to be present at the property frequently to make sure work is going as per plan and budget otherwise the cost of the project can balloon beyond your original plan. If you are planning to rent a multi-family you purchased but don’t get the place fixed in time to get tenants moving in, you can lose rental income that far exceeds the profit you may make from an excellent fixer-upper deal.
4. Do I have the skills?
First, ask the question if you will be living in the property while you fix it or renting it out. Since many people who are looking to get started with a fixer-upper rental properties plan to do the work themselves, often live at the property while fixing it. Consider this if this is your profession or if work is small enough that you can manage on your own.
Working by yourself on your own rehab can save you not just money but also and help manage similar projects more efficiently in the future. Now, let’s look at the last question which is also one of the most important ones to answer.
5. Do I have the drive?
Ask yourself what skills and motivation do I have to take on a project of this size, and how will drive me to complete the project. Are you going to seek help from friends and family or are you going to hire professionals who will do all the work? Whatever your answers are, getting a clear picture of your key driver will provide you clarity to make the decision. Also, keep in mind that the first fixer-upper is always the most challenging.
So think about these five questions when you are considering a fixer-upper. It can definitely create wealth for you, as long as you weigh the pros and cons carefully. It is crucial that you do your due diligence on any fixer-upper you plan to work on. Develop a detailed plan and account for potential pitfalls. Then take action, and get cranking.
If you are looking to buy a property, let’s talk – give me a call or text me.