Published: August 24, 2010 By: G. M. Filisko
When you buy a fixer-upper house, you can save a ton of money, or get yourself in a financial fix.
Make sure you have the time, skills, and desire to embark on home improvement projects before buying a fixer-upper house. Image: Somos/Veer/Getty Images
Trying to decide whether to buy a fixer-upper house? Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.
TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house.
If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems.
Get written estimates for repairs before you commit to buying a home with structural issues.
Don’t purchase a home that needs major structural work unless:
Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings.
If you’re planning to fund the repairs with a home equity or home improvement loan:
Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.
For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.
Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.
The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.
Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair.
Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:
Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.
If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.