How to Take the Risk Out of Buying a House That Needs Work

A fixer-upper can be a gamble. Either you win big or you fail big, or so it seems. Luckily, there are ways to turn the odds in your favor. By following the right moves during the buying process, you can ensure that you get an excellent investment at a fantastic price, rather than a housing disaster that sucks all the money out of your bank account. Here’s what to do.

Examine Your Financing Options

Before purchasing a house, you have to determine how much you can afford. This is similar to buying any other house, with the caveat that there are extensive renovations at the end of the purchase that you must fit in your budget. Start with how much you have in savings. That money can be used for your down payment, and the general rule of thumb is that the more you pony up initially, the less you’ll have to shell out in monthly mortgage.

Which type of home loan you qualify for depends largely on your income as well as your credit rating. Be sure to find out the annual percentage rate, which includes certain costs of buying a home such as broker fees, discount points, and some closing costs, as well as the interest on the loan, providing a more complete picture of what you’ll ultimately owe.

Now it’s a question of priorities. Generally, you can make a higher down payment to get a lower mortgage but have less money in savings for renovations, or you can pay less initially and have higher monthly payments but plenty of money left in the bank account for the new home.

Hire a Qualified Agent

Make sure you find someone with the level of expertise you need, and that could be high if this is the first time you’re buying a house. Start your search with referrals before checking the agent’s references from previous clients. Once you’ve narrowed it down to a few candidates, hold meetings to gauge whether they’re the right person for you. The experts at property market Zillow suggest asking how often they work with buyers, among other questions. You also need to know about their experience with fixer-uppers.

Find the Right House

The worst house on the best block. That’s what you’re looking for, a veteran contactor told Realtor.com, because the high price of similar-sized homes in the area will have a positive effect on your investment after you’re finished with your renovations. He also explains that you should expect to pay about 20 percent to 25 percent less than the nearby turnkeys. Of course, all the regular rules of location apply: good schools, nearby amenities, and a low crime rate.

Get an Inspection

You want to avoid serious flaws that make your purchase more expensive than a turnkey once you’ve completed your renovations. Some red flags include a wet basement, which could indicate damage to the foundation. Also, be sure of the soundness of the structure. You’ll need to have it inspected by a licensed professional, who should also help you gauge how much work needs to be done and at what cost.

Hold Off on Moving

As much as you’d like to move in immediately, it may not be a good idea if there are major renovations that need to be done. Contractors will be able to finish their work more quickly and at a lower cost if they don’t have to worry about the comfort of your family living amid the sawdust and the safety of your belongings. Bear in mind that staying in your old house or renting an apartment for the duration could add to your moving budget.

Once the dust settles, you can look at your achievement with pride. The only question now is should you stay or should you flip? That largely depends on how much you’ve spent on renovations. If they cost significantly less than the money you saved buying a fixer-upper, selling could offer a tidy profit. However, if it’s likely to appreciate in value in the future, then holding is the better option. Either way, you’re the winner.

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Article Guest Written by Bret Engle | DiyGuys.net