Pros of Investing in Fixer-Uppers
1. Cost Savings
One of the biggest advantages of buying a fixer-upper property is the price. There are a lot of cost savings to be had when you buy a home that needs some work done. For many buyers, this is necessary to be able to buy a home in the first place.
Houses are expensive. And home prices usually only tend to go up. This means that for people on a tight budget, buying a fixer-upper property might be the only short-term path to homeownership.
While there are plenty of costs incurred through actually making enhancements to the property, they are not upfront costs. If your budget is tight, you can opt to make the necessary enhancements up front, but wait on other upgrades until there is the financial wiggle room to bring those visions to life. As long as you have a functioning kitchen, bathroom, and bedroom, many other aspects of the home can wait.
2. Customization and Creativity
Another big advantage of fixer-upper properties is that you have much more room for customization and creativity. If you buy a house that isn’t in need of renovation, it can be wasteful to immediately rip up the carpet and knock down walls. However, if the home you buy is already in need of new carpet and paint, there’s no financial harm in starting from scratch!
If you have a creative mind, a fixer-upper property can be your canvas. From creating an open concept to introducing new flooring types and window styles, you can do a lot to a fixer-upper property without destroying its value.
While you could technically do this in any property, you don’t risk harming a fixer-upper’s value. A “nice” house’s value might drop if you start tearing out elements that were incorporated into its purchase price. However, with flip properties, the expectation is that they will be gutted and renovated anew.
3. Potential for Higher Returns
ROI, or return on investment, is a common term used when discussing fixer-upper properties. Whether you’re buying the home as a flip or you intend to live in it, the fact is that most families don’t live in the same house forever. One day, you’re likely to sell it.
If you buy a fixer-upper property, its value is already very low. This means that very few pieces of the property actually hold value, and there is very little you can do to diminish its value further. By making upgrades and changes to the home, the value is likely to go way up.
This isn’t just because the upgrades make the home nicer; it is also because the upgrades restore the home’s desirability. Most fixer-uppers are sold below market value simply because no one has a desire to live in them. If you do a good job with renovations, you raise the home’s price because of both the upgrades themselves and the home’s renewed desirability.
Cons of Investing in Fixer-Upper Properties
1. Hidden Costs
One of the biggest drawbacks to buying a fixer-upper property is that costs can add up very quickly. This is especially true if you are not very experienced in the world of fixing up properties. Labor, materials, and time estimates can all wind up being much more than you initially anticipated.
Even if you have significant experience with fixing up homes, there are plenty of ways that hidden costs can appear. Prices of materials can go up, unforeseen structural problems may come to light, and certain regulatory restrictions can come into play. While the home may be cheap to buy, restoring its livability can be a costly endeavor.
2. Time and Effort
Another major drawback to fixer-upper homes is the amount of time that they can truly take to renovate. Many people estimate how long the renovations should take, but these estimations fail to capture the fact that life gets in the way. There are always going to be competing priorities, especially if you work a full-time job, and there’s a very good chance that the project will drag on for longer than anticipated.
For some people, this is fine. But for others, it can be very costly. If the house is already livable and just in need of some love, that’s one thing. But if the house needs major work before it can be occupied, this can lead to extra time living in a rental or in another temporary living situation.
3. Market Risks
The final major concern with fixer-upper properties is that market conditions can change rapidly. Neighborhoods change, demand for houses fluctuates, and the availability of experts can switch on a dime.
A great example of this is the recent COVID-19 pandemic. Due to government regulations, many contractors were unable to work for months. If you were relying on contractors for any part of your labor, which you likely would, you were forced to wait for months.
On top of that, waiting lists for these services bubbled over due to the months of inactivity. These waiting lists further increased prices, which ultimately delayed the work that was getting done and raised its costs as well.
Similarly, local governments often redraw school district maps. Some school districts raise property values, while others lower property values. If you buy a house and hang your hat on its school district’s ability to buoy its price, a redrawing of the map could be catastrophic.
