Is It A Fixer Upper Or A Money Pit?

Is It A Fixer Upper Or A Money Pit?

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fixer upper

Before the current housing bubble popped, investors were scouring the marketplace for homes needing a makeover with the intention of fixing them up for a quick flip. Savvy investors were able to buy a house, make improvements within a few weeks or months, and turn around and sell the renovated home for profit.

It wasn’t unheard of for investors to come away from their deals with profits exceeding 20K, 50K, even $100,000 or more. Indeed, a television series, Flip This House, popularized this trend.

Today, much has changed as the number of homes available on the marketplace has increased sharply. True, it is a buyer’s market and wonderful deals can be had, but the profiting from a real estate flip has all but dried up as well.

Four Factors To Consider When Buying A Fixer Upper

When purchasing a home that you expect to turn around and sell there are four factors to consider:

  1. Purchase Price — The lower price you pay, the more room you have for profit later.
  2. Renovation Expenses — You need a ballpark figure to understand what the “fix up” costs will be. Allow for surprises such as termite damage, a wall that must be removed, exterior changes, and more.
  3. Carrying Costs — The longer you own the home, the higher your costs for utilities, mortgage, taxes, and insurance will be.
  4. Anticipated Resell Price — How much will your home fetch once it is ready to be resold? Is the market stable enough to come up with a reasonable price? A real estate agent can help you “guess” the price, but you won’t know what the market will bear until you put the home on the market.

Finally, if the market isn’t strong once your fixer upper goes back on the market, will you be able hold onto your investment or will you be forced to slash prices in order to sell?

No one wants to be stuck with a money pit, so do your homework and hope for the best.

Resources

5-Step Home Remodeling Plan

Home Remodeling Checklist

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