Buying a fixer-upper can be a great way to get a good deal on a home that will rapidly increase in value once you improve it. It can also be a money pit if you’re not careful.
If you’re thinking of investing in a fixer-upper, whether for your personal home, a rental, or a flip, make sure you know and do these three things before jumping in:
Three things to know before getting a fixer-upper
- Know the condition of the Big 5: 1) Roof, 2) Foundation (a biggie in Texas!), 3) Electrical, 4) Plumbing, and 5) Heating/AC. In one house, I missed an outdated electrical panel, and it cost an unexpected (and unbudgeted!) $2,500 to replace. On another house, after our due diligence on the Big 5, we found the house only needed cosmetics touch-ups. We turned the property in under two weeks, clearing $40,000.
- Get a reputable inspection company to go through the property. They’ll give you a general overview of possible issues, then you’ll want to follow up with licensed specialists to take a closer look.
- Know how you will pay for the home. If you’re trying to buy a fixer upper with an FHA, VA or conventional loan, you’ll discover that lenders will not lend on a home that requires major repair work. Unless you’re going to use the 203K loan program, where the lender holds money in escrow for repairs, you will need to be ready to pay cash, hard money, or use a private money lender.
Have you ever purchased a fixer-upper? What was your experience? Do you have other tips to recommend?
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