Whether you’re buying your first residence or an investment property, you want to turn that house into a home. Oftentimes, that includes remodeling to some degree. But is it worth it to buy a fixer-upper?
Recent findings from a Porch.com survey show that while 94% of people who bought fixer-uppers knew what they were getting into, some were caught by surprise. In fact, 6% of those surveyed ended up with accidental fixer-uppers when they thought they were getting turnkey homes.
Should you buy a fixer-upper?
It’s no secret that some of people end up drowning in debt due to underestimating the amount of time, money and work that is involved in turning an old house into a beautiful home.
Money expert Clark Howard says part of the problem is that people have delusions of grandeur when it comes to fixer-uppers.
“People will go into a neighborhood they want to live in or invest in and they’ll find a really beat-up house that needs a lot of work and in their minds — wanting to make it work for themselves — they will go ahead and buy that house, pretending that the amount of time it’ll take and the cost of improvements they’ll have to make will still make that house a deal.”
Of those surveyed by Porch.com, a little more than half completed their project on budget. Here is the breakdown from the survey:
- 5% finished under budget
- 44% finished over budget
- 52% finished on budget
The findings show that those who went over budget tended to so in a big way, spending 38% more than they intended. The projects that went over budget the most were new HVAC systems, followed closely by plumbing and basement costs.
Clark says there are some real expenses that need to be calculated into your budget if you’re thinking about buying a home that needs major work.
Clark’s take: Here’s the ONLY time you should buy a fixer-upper
If a house is in really bad shape, it has likely been discounted because of the long list of repairs and improvements it needs. Clark says, “The only people who can make it work financially are people who can do the work themselves.”
“I’m not talking about someone who thinks they can do the work themselves, I’m talking about someone who actually is capable of doing repairs, putting in new cabinets, installing new toilets, whatever it is.”
Clark adds: “That’s the person who can leverage buying it at a lower price and make money on that property. By doing the work themselves, those owners can have instant equity in the home if they’re going to stay in it, or have a good return on it if they sell.”
For the vast majority of people, buying a fixer-upper will end up being a money pit. Clark says the segment of buyers that are most likely to benefit are people who maybe have a background as remodeling contractors, builders, or work in a trade.
But there’s one distinction that needs to be made, according to Clark.
What if the home only needs minor work?
There is only one reason to buy a home that needs work: If the fixes are largely cosmetic.
“If a house just needs cosmetics and people are turned off by it because of the paint colors or there’s wallpaper in the bathroom or things like that, those are perfectly affordable fixes and you can do them in a timely fashion to bring a house up to market and make it look good,” Clark says.
Want to learn more about what to look for in a new place? Check out how to buy a home in nine steps.