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Knowing Your Options for the “Fixer Upper”

Knowing Your Options for the “Fixer Upper”

We are happy to introduce Preston Sandlin as our guest blogger today. Preston is the owner and founder of Home Inspection Carolina and has over 15 years experience in the inspection industry. – The KCM Crew

Couple PaintingThe fixer-upper properties on the market will give you more purchasing power when shopping for a new home. Bargains can be found in homes that have been foreclosed, seized by the government or just fallen out of repair due to homeowner neglect. While it is true that you will save thousands of dollars on these homes that will need lots of work, there are hidden costs that buyers fail to consider. Ask yourself if it’s worth it and know your options.

Know exactly what you are getting into

Don’t underestimate the cost of renovations and repairs. A home inspection will let you know the fundamental repairs and maintenance that must be done to the home. Without a home inspector, you may end up over paying for the fixer-upper anyway.

The inspector will evaluate any problems with the interior and appliances, roofing, heating and cooling system, plumbing, electrical wiring, insulation and ventilation, and the structural foundation, exterior faults and more. Fixer-uppers may have a lot of problems with these parts of the home. A home inspector is worth hiring to get an unbiased perspective and uncover problems you can’t see yourself.

You ultimately have to decide how much money you are actually saving by buying the fixer-upper once you add in the costs. Once you spend all the money on repairs to make it habitable, will you still be satisfied with your choice? Will you hire someone to do the repairs or do you have the patience and skill to do it yourself?

Consider a FHA insured HUD 203(K)

It is worth checking to see if you qualify for a program known as HUD 203(k). It allows the buyer to purchase a fixer-upper with a FHA guaranteed loan, and the best part is that it protects you from extra costs if the “fixing” part costs more than estimated. You must submit a comprehensive list of repairs with corresponding cost estimates with your application, so you will need to get a home inspector, have the cost of labor and repair determined, and prepare your detailed plan for accomplishing it all for the FHA and your creditor.

DIY

The ideal fixer-upper would consist of superficial revamps rather than major appliance, ventilation, or structural repairs. Minor renovations would be painting inside and out, installing ceiling fans and light fixtures, and replacing carpets, windows, or doors.

Be patient

Fixing up the house might take longer than you originally planned, but it can be well worth it. Remodeling and minor repairs will most likely take longer than you expect, especially if you are haven’t dealt with this before. You chose to save money with a fixer-upper. It takes time to give a house the proper care that will result in a comfortable house to call your home. Do your homework and make an informed decision.

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3 replies
  1. Larry Steier
    Larry Steier says:

    Good article on buying a “fixer upper”. The writer recommends a home inspection to know exactly what you are getting into and “Don’t underestimate the cost of renovations and repairs”.

    Most people have heard that advice and more often, over estimate the cost of renovations.
    In my (far to) many years of Real Estate experience, over estimating is the more common mistake.

    Successful buyers of fixer uppers use a home inspection as a starting point. Then the buyers work begins to find the true costs of repair which are often (possibly more often) far less then the cautionary figures and images projected by our well meaning protectors.

    -Larry Steier Royal LePage Allstar

    Reply
  2. Nancy Karp
    Nancy Karp says:

    This is a very good article, and I have a couple of points to add. I’ve been a real estate broker on Chicago’s North Shore for over 9 years. I often recommend having an inspection PRIOR to making an offer on a home that clearly needs a lot of work. Then you can make your offer based on realistic expectations of the work that needs to be done. And you don’t get stuck trying to negotiate inspection issues after you have a contract in place and the seller already is already mentally counting their proceeds from the sale.

    Another thing that I have learned is that the 203K loans referred to in the article take a LONG time to get approved and closed. The reason for this is that these loans are based on the future value of the property after the repairs have been made. So that means that you have to provide all of your plans and cost estimates to the lender. If you are buying a distressed property (a bank-owned home or a short sale) you will not have the luxury of unlimited time to get to the closing table. Once you have a contract in place on a bank-owned property, they want to close as soon as possible – in fact if you can’t close within 30 days or less, you won’t be able to compete with other purchasers that have cash or can get a mortgage quickly. Maybe you could get the property if you are willing to pay a higher price…but then that negates the point of buying a foreclosure. In the case of a short sale, you can wait several months to find out whether or not you have a deal…but once it is approved you MUST close within 30 days. This means that you won’t have time to get a 203K loan approved.

    Nancy Karp
    @properties
    Chicago’s North Shore

    Reply
  3. Preston Sandlin
    Preston Sandlin says:

    Thank you for your great comments! You both add some very good points. I didn’t know that people over estimate costs more often than under estimating, but it makes a lot of sense!

    As far as the 203K loan is concerned, it definitely would be most useful in certain situations where time is not of the essence, but as you say, most “fixer uppers” will have a deadline because they are usually a short sale or owned by bank. I can imagine the processing would take forever…

    Reply

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