Recently, I had the pleasure to read a great expert-roundup over at HomebuyerNation and thought to myself – why not do one of my own. So I did.. I went ahead and reached out to some of the TOP realtors across the country to shed some light on buying Fixer-Uppers– and I asked…
What is the one TIP you’d give to someone buying a Fixer-upper as a FIRST time home buyer?
In this post, you’ll discover some incredible advice about buying a “Fixer-upper” as a first time home buyer. Everyone makes a few mistakes along the way – learn how to avoid a BIG one that could cost YOU thousands in the end!
I learned quite a lot from these expert Realtors and I know you will too! Once you’re done reading, feel free to post a comment – I’d love to hear which tip you liked the most…
1. What’s The Market Value
I have to say that any first time home buyer who plans on attempting to purchase a fixer-upper would be to first know what the property is actually worth in market value. As we all know that changes and at times can change rapidly depending upon the local market. What a lender is willing to loan, can be a good indication on the value. However it is often best for the potential buyer to do a little leg work on their own beforehand so that they can move forward as an informed buyer and not be caught unaware of issues in value, cost of repairs and finally marketing if they intend to resale the home. Having a reputable contractor can often eliminate overages on repairs, etc in the long term. There again, often having a home remolding expert to seek advice from during the purchasing process can save new buyers time and money.
We hear more and more about investors being able to purchase fixer uppers at a greatly reduced price, who after closing realize that it may not have been such a great bargain after all.
2. Don’t Overpay
Make sure you have a solid understanding and knowledge of home values in your market. The top mistake made in these situations is that the buyer over pays for a property, basically paying what the property is worth, minus the work needed. You have to ask yourself, why do the work if you are gaining no equity?
3. Don’t Get Caught Up In The Excitement
I think I’d tell them to not get caught up in the excitement or rush. Likely, they will have to purchase the home AS IS and even though no repairs will be made I highly recommend them to order a home inspection and work with a realtor they TRUST implicitly. One that knows the market and can give them a strong and comprehensive view of the market.
4. Know Your Limits
Know your limits. Know your financial, skill, and life limits as far as fixing up a home. And don’t overextend yourself dangerously in any of these areas.
5. Get Estimates From Contractors
Take your contractor through with you before you make the offer – get estimated repair quotes before you generate offer so you can make a reasonable offer instantly. The profit is made at the time of the offer. If the repairs are major, do 203 FHA financing.
6. Buy In The Right Neighborhood
Buying a handyman-special (aka fixer-upper) seemed like such a great idea: get into a great neighborhood for far less than most homes sell for. Most 1st time home buyers have no idea what they’re getting into, and why would they?
ProTip: Never underestimate what you’ll need to spend to make the property saleable. Consider all the latent *hidden* defects such as foundation issues, roof replacement cost overruns, electrical & mechanical systems.
ProTip2: Don’t purchase the home unless you plan on living in it for at least 7 years.
7. Expect The Un-expected
If you are a first time home buyer that is looking at a fixer upper, I would recommend that you do your homework. Real life and television are NOT the same. Be ready to live in renovations for a while and expect the un-expected when you start such a project. You can do it but make sure you understand what you are REALLY getting yourself into before taking the plunge.
8. Do ONE Thing Right – Buy Well
When I speak on the stage or give my Buyers and Sellers advise I say the same thing to everyone:
Money is made in Real Estate when you buy, not when you sell. Real Estate is a commodity and therefore it’s value fluctuates just like most other investment vehicles. In any marketplace whether it be a Seller’s Market, Buyer’s Market or the current Rebounding Market you can always buy well! The owner’s/seller’s current circumstances control how well one can buy, not the economy. It doesn’t matter what the current marketplace conditions are. I grew my business exponentially during the Recession because I focused on finding clients who needed me most.
If buying a fixer upper one must do one thing right, BUY WELL! If they don’t buy it right everything else is out the door… The further below the market value the buyer can establish their basis in the home the more flexibility and options they have on the improvements they chose to make or not.
9. Never Underestimate The Work To Be Done
Along with working with a local knowledgeable Realtor® I would highly highly recommend that the buyer works with a local experience contractor. The biggest mistake on flips or estimating renovations/remodels are under estimating the work to be done and not correctly budgeting/pricing the materials & labor.
10. Be Willing To Put In Some “Sweat Equity”
Excellent question…. The scenario you are referencing is a buyer who is willing to put in some sweat equity. Its important to realize that even if you are not doing the work yourself, the process can still be quite time consuming as you will be shopping for materials, getting bids on jobs, meeting the contractors and workers, dealing with permits etc., and also dealing with people who say they will show up and don’t.
As a first time buyer, it is important to realize that unless you are paying cash, there are other extraneous factors that will determine whether you will be able to purchase a fixer upper. Lenders will not lend on properties that have a faulty roof, faulty foundation, is missing a kitchen, has no heat, has unpermitted additions etc. It is important to remember there is a big difference between a fixer upper and a remodel.
Last but not least it is important to remember that everything is about supply and demand. Today due to limited inventory, some may be overpaying. Its important to remember that your offer price must take into consideration a realistic expectation on what it will take to bring the property up to par.
If you are looking at a property to live in and hold, the advantage of buying it already remodeled and finished is that you can finance it in the loan. If you are buying a fixer upper, that money is coming out of your pocket and or possibly being put on credit cards at much higher rates. One advantage of buying a fixer upper is that essentially may have a blank canvas that you get to fix up and remodel towards your own tastes. Much success to you and your readers!
11. Excellent Opportunity To Build Equity Over Time
As a first time home buyer, a fixer upper maybe an excellent opportunity to build equity over time, purchase at a lower price and move into a neighborhood that otherwise may not have been affordable.
12. Be Careful Not To Over Pay
13. Leave Nothing To Chance
My number one tip to a first time buyer purchasing a fixer would be to leave nothing to chance. Know as much about the market and the home as possible. Don’t be afraid to get multiple inspections from licensed contractors, plumbers, electricians etc.. Also having an extra cash reserve above what you expect the repairs to be is a must.
14. Interview Multiple Realtors
#1 Tip: Interview multiple Realtors in the area you’d like to reside in. Don’t hesitate to ask all types of questions. When making any type of home purchase whether large or small, fixer-uppers to rentals; it’s important that your realtor understands the market value and what your properties potential can be, if and when it’s bought at the right price to garner the profit potential for that market.
Furthermore, the FHA has a Program called FHA 203 that will do the Mortgage and loan the Buyer cash to fix up the House.
-Victor Martin, Weichert Realtors
15. Have An Exit Strategy
Have an exit strategy…. a plan for the worst case scenario. Analyze all the things that could go wrong or that could change in their situation and have a solution or exit plan that will cover their butt.
16. Be Sure To Have A Home Inspection
17. Don’t Take on More Than You Can Handle
People often *think* they want to do work. They look at the purchase price of the fixer upper/handyman’s special and get excited. They don’t properly account for the cost of turning the property into their dream home. The time, the energy, the cost of living somewhere else temporarily in many cases. They need to accurately gauge how long it will take, what will it cost, and be prepared that it will take MORE time and MORE money. They need to consult with the appropriate professionals- the architects, contractors, expediters and gather estimates. They need to understand if they need to engage local authorities and for what (and how long that process will take and the associated costs) Their agent should be able to provide them with references to professionals so that they can make an informed decision between the “fixer upper” and the “move in ready” property.
18. Don’t Over-build
Do NOT over-build for the neighborhood – check the comps!
19. Don’t Get In Over Your Head
My one advice in buying a fixer upper if you are a first time buyer don’t get in over your head.
Know what construction costs will be and then add 20% more to the figure and 20% more to the time it will be done.
Most importantly don’t overspend for the neighborhood you are buying into. If the home isn’t in a high end neighborhood don’t go over board with the kitchen, bathrooms etc..
20. Have An Adequate Budget
My #1 & #2 tips for first time buyers are:
2) That the buyer(s) accurately define the scope of the work needed/desired and have a adequate budget in place to accomplish their goals
21. Keep A Cash Reserve For The Unexpected
buying a home can be overwhelming as it is. Be prepared when buying a “fixer-upper” or renovation project that it could take some time to do the renos and add in addition buffer in terms of cost! You never know what you could find that you did not expect!
22. Forget Emotion And Look At The Numbers
If I had sum it up in only a bit of advice, I would say “Forget the emotion and look deeply into the numbers, does it makes sense numbers wise?”
23. Get a Home Inspection
I would say the best tip is to have a home inspection to really make sure the home doesn’t have large, unseen flaws. Knowing up-front what a home will need or what condition the major mechanicals are in is crucial to the total investment required. There’s a lot more to a fixer-upper than basic paint and carpet. The largest expenses for remodeling can come from the foundation, roof, heating/cooling systems, electrical or plumbing.
24. Know The Value Of The Home Once It’s Repaired
Know the value of the home once it is repaired, and get a good estimate of what it will cost to make the repairs. That may be two tips, but you need to know those two things to make sure you don’t end up putting too much money into the property.
25. Research, Research, Research
Fixers can be a good deal. They can also be a financial sinkhole. Start by researching neighborhood values and trends. Make sure you are looking in a stable to improving neighborhood and understand what the subject property’s market value will be in good condition. Next have a professional home inspection including radon testing. Contact a contractor to inspect the HVAC system. Get quotes on having all needed repairs done and do the math.
Good condition market value – ( purchase price + repair cost ) = property equity potential. The purchaser then has to decide if there is adequate equity potential to make the project worthwhile. My seasoned investors wont consider a property that has less than 30% equity potential.
First time homebuyers haven’t had the education that hard experiences give and are often overly optimistic overlooking the potential hazards in their excitement.
26. Hire A Reputable Realtor
Since you are going to be purchasing a fixer-upper as a first time home buyer,make sure you hire a knowledgeable and competent real estate agent. It doesn’t cost to hire a real estate agent. It pays to have a good one on your team. A good realtor who will show you the latest real estate market reports in the areas you are considering so you can know whether I should be buying in this city or state or subdivision based on the real estate market report.
27. Be Sure To Review The Alteration Agreement
2. Comp the flip.
28. Get Estimates From Contractors Before Making An Offer
I advise my first time home buyers to only buy a fixer upper if they have a full team of professionals lined up to start the work , or a qualified contractor that will coordinate the work. Often times surprises pop up and and they can be a tough financially on a first time home buyer who wasn’t expecting it! It is best to get all you estimates prior to making an offer.
29. Not All Fixer-Uppers Are Created Equal
My advice for buying a fixer upper as a first time home buyer is to make sure there is an inspection to make sure that the buyer knows all of the
major repairs/upgrades needed. Not all fixer uppers are created equal!
New paint, fixtures, windows, and roof, can add a lot of value but if the buyer is not well informed they could end up with a money pit. So my one tip is make sure that you know what you are getting into before you buy, do the inspection, know the cost of the fixing up, and make sure it is worth your while.
30. Avoid a Money Pit
The one tip I would give is to “Have a qualified professional such as a home inspector, builder, or structural engineer, take a look at your fixer upper BEFORE you buy it to ensure it’s structurally sound. You can make that a contingency in your offer to purchase. A qualified Realtor can advise you as to the best wording and forms to use.
There is nothing wrong with a house that can’t be fixed but structural issues are complex and very costly. These things are usually beyond the reach of the first time home buyer. Crumbling foundations, sagging roof timbers, and things like that can turn your fixer upper into a money pit.
Wow! That was one incredible list of Expert TIPS! Thank you so much to everyone that contributed. This will be a valuable resource to future first-time home buyers looking at fixer-uppers…
Now it’s your turn – do you have a PRO tip to share? What was your BEST takeaway from these tips? Share your comments below: