If you are a first-time homebuyer, you may be interested in purchasing a fixer-upper property. Renovations offer many possibilities; the property can be flipped to make a profit or designed to become the home of your dreams. However, making it through the renovation with your bank account intact can be tricky. Here are some ways you can lighten the monetary burden while still keeping your dream alive.
Investigate Your Chosen Neighborhood
Begin by researching your area thoroughly. The quality of the surrounding neighborhood and the number of repairs needed on the house should balance out evenly. Nearby schools, parks, and popular stores increase the value of a home, as do walkable trails and attractive landscaping in the neighborhood. However, you should calculate whether the increase in value from a desirable location will be enough to counteract the renovation expenses if the house requires significant repairs.
There are several ways to find a good fixer-upper. The first and least expensive method is to just drive around your preferred neighborhood, keeping an eye out for run-down homes and foreclosure signs. You can also hire a real estate agent to show you listings that meet your criteria, or you can browse online listings yourself. Finally, you can look for bank foreclosure notices and auctions for potentially good deals.
Determine the Home’s Expected Value
Once you’ve found a house, but before making an offer, there are two things you should do. First, hire an independent home inspector to look over every aspect of the property. This will help you form an idea of the overall cost of the renovation and will prevent you from being blindsided by an expensive unexpected repair later in the renovation. Next, you should manually estimate the house’s affordability. While there is no shortage of online tools to do the job for you, the only way you will get the complete picture of how the house fits into your expenses is to run the numbers yourself.
Begin by analyzing your annual income, down payment, loan type, and current average APR. After that, factor in your monthly spending. Be sure to include monthly bills and daily expenditures. Finally, account for any expenses that will be added once you become a homeowner, such as utilities, property taxes, and post-renovation maintenance if you plan to live in the house permanently. Compare the final number with the expected cost of purchase and repairs and determine if the house fits your budget.
Repair Each Section of the House
Once you have purchased your fixer-upper, the real work begins. Since you already have a list of necessary repairs, start with the most urgent needs -- foundation repair, roof, electrical systems-- and work down from there, gradually narrowing your focus until the major repairs are complete. Then, you can install floors, windows, and large-scale additions. Finish with more cosmetic touches, like paint. Remember to allow time to spruce up the front of the house, as well as the yard’s landscaping; the front door and surrounding yard will be each buyer’s first impression of the house. If you haven’t already, invest in some quality tools such as hammers, saws, sanders, and drills to make these jobs easier.
Decide Whether to Flip or Stay
While you may have had an idea of your end goal before the project began, once the renovation is complete, you must make a final decision: whether to make the house your permanent home or flip the house to make back your investment plus a profit. Much of this is determined by the strategy you took in selecting the house; if you chose a house in an area you would like to live and designed it according to your tastes, consider staying. However, if you designed it in a more mass-appealing fashion, perhaps the home would be an easy sell.
While renovating a fixer-upper can be particularly challenging for a first-time homebuyer, if you carefully planned out your strategy at the very beginning and followed it through with an attention to detail, the end result will be rewarding. Remember to keep track of expected expenditures, actual costs, and the status of your overall budget to make the experience as positive as possible.
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Author: Bret Engle
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