Investing In a Fixer-Upper Property

Fixer-upper investment properties have become very popular in recent years due to “flipping houses” television shows. Thus, this real estate strategy is sought-after for good reason. Although fixer-uppers have many risks, they can also be very rewarding if done the right way. Flipped properties can be a great way for first-time investors to enter the business within their own budget. They can also allow investors to be creative and personalize the property the way they want it. This guide will discuss the many dos and don’ts, as well as various factors to consider when investing in a fixer-upper property. 

Dos and Don’ts of a Fixer-Upper

• DO acknowledge all of the finances. Not overpaying for a fixer-upper property should be the top priority for any investor’s finances. Then come in the repairs and renovations that the property will need. A fixer-upper can become pricey quickly and might require additional financing from a third party such as a credit card, conventional financing, or FHA 203k loan. The 203k loan was developed by the Federal Housing Administration to specifically encourage renovating older homes. 

• DO choose a good location. A fixer-upper property’s location is just as important as the other qualities one might look for. If the general location isn’t a good area, it could make for a poor investment. Some factors to consider when choosing a location include walkability, school districts, and local amenities. Another thing to consider is to not choose a property with other fixer-upper homes surrounding it. Tenants don’t want to live in an area with abandoned, boarded-up homes. Although it might present itself as a promising market, a neighborhood like this won’t make for the best investment. 

• DON’T disregard foundational or layout issues. Many fixer-uppers might appear a better deal than they actually are. Be sure to understand all of the possible repairs, including if the property has any issues with the foundation. Any major cracks or shifts in the foundation can turn any low-risk investment into a high-risk one. A fixer-upper with a bad layout can also be cause for complete reconstruction and major financing. A good layout should be practical and allow space to flow. Hiring an experienced home inspector will ensure that there are no surprises before investing in a fixer-upper property.

• DON’T underestimate repair costs. Most fixer-upper properties will include cost estimates for the repairs, but they aren’t necessarily accurate. Inspection reports can be off and many repairs can turn into even bigger ones. It’s important to be completely aware of the repair costs, including any additional repairs that might come up. It’s also good to know the easy fixes versus what repairs will cost more time and money. Easy fixes can include replacing doors or adding ceiling fans while more expensive fixes can include replacing plumbing or pouring concrete. 

Some other factors to consider when investing in a fixer-upper property include:

• Finding a good contractor
• Calculating the best ROI
• Whether to DIY or hire professionals
• Negotiating with a forceful seller
• An “as-is” contract

For more information on investing in real estate, check out Tips for First Time Investors.