Buying a fixer-upper is a great way to build equity, but here are 6 things you should take into consideration before you decide if this is a good step for you:

1.  Take a hard look at your skill level.  Some fixer-uppers really just need to have the junk hauled off, deep cleaning and painting, and wallpaper stripped off and most people can do this type of work themselves.  But certain types of work need an expert (plumbing and electrical) or someone with a medium to high skill level.  While there is nothing wrong with learning as you go, if your work ends up being less than professional, you can hurt the value of the house, instead of helping it.  So a realistic assessment of what you can do and what you would have to hire done is the most important first step.  And ask yourself if you really have the time it will take to do the work and whether you are willing to live in a contruction zone while it gets done.

2.  Determine how much it will cost to do the work.  Estimate the supplies and tool rental expenses you will need for the things you will do yourself (and a good rule-of-thumb is to tack on an additional 20% for unexpected expenses that always have a way of cropping up).  If you will have some or all of it done by experts, have him/her do a walk-through and give you an estimate of charges.  And don't forget to factor in permit costs and the time and effort it will take to obtain them.

3.  If the home needs major structural work, get a structural inspection.  It is well worth the cost ($500-750) to have a structural engineer do an inspection if you think the home has structural defects.  Then, once you really understand the extent of the problems, you can get written estimates of the cost to do the repairs.  Serious structural problems can undermine all your best-laid plans, so don't skimp here.  You need to know what is wrong and what the cost will be to bring the house up to snuff, so make any offer contingent on a structural inspection.  And it just might save you from ending up with a serious problem that CAN'T be fixed.

4.  How are you planning to pay for the repairs?  If you have the cash saved up for this, great!  But if you have to get a loan, you will want to get pre-approved for this before you get serious about a home.  There are several types of loans available that allow you to borrow the additional money to get the work done on the house; these include FHA-203K loans, HomeStyle conventional loans, or Rural Development Loans.  All of these loans have different requirements and eligibility standards, so call a good real estate agent and let them refer you to a lender experienced in doing these special types of loans to see what might be available for you.  And be sure to make your offer contingent on being able to get the loan to purchase the house AND do the work, so you won't be forced into purchasing the home without the money you need to do the repairs.

5.  Calculate a fair purchase price for the house.  HouseLogic.com recommends this formula:

"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."

 

6.  Be sure and make your offer contingent on getting the inspections you need.  These can include a home inspection, pest inspection, tests for radon gas or lead-based paint, and well and septic inspections.  When you have an earnest money agreement that is contingent on inspections, it gives you the right to go back to the seller and ask them to complete some or all of the repairs (unless it is specified that the home is being sold in as-is condition) and it allows you (or the seller) to back out of the deal if there are more repairs needed than you are prepared to deal with.  Fully understanding what you are taking on is absolutely necessary when you are considering a fixer-upper house.

 

Following these 6 steps can mean the difference in getting a great house in the end with some nice equity, or buying a money-pit that will cause you to lose money.

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The above information on buying fixer-upper homes for sale was provided by Barb Hutchinson.  Barb can be reached by email at candobarb@msn.com or by phone at 208-707-4663.  Barb has helped people move in and out of homes in The Treasure Valley in Southwest Idaho for the last 27 years.

Thinking of selling your home?  I love to share my marketing expertise!

I sell homes and real estate in the following southwest Idaho towns:  Payette, Fruitland, Parma, Emmett, New Plymouth, Weiser, Caldwell, and Nampa, ID

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