Remember those grand dreams you had for your first home? Of course, with time, you must have realized that Easy Street isn’t so easy after all. Still, like most Americans buying a home is most likely at the top of your mind. So, what to do? If you need more cash for your first home, buying a fixer-upper is an easy way to get into homeownership. This is a property that requires some maintenance before you move in and usually comes at a lower price. Sounds quite attractive, right?
While it may sound easy on paper, buying a fixer-upper and turning it into a home can overwhelm you. Luckily, there’s a lot of information to help you turn this run-down property into your dream home. So keep reading to discover everything to know about investing in a fixer-upper as your first home.
Fixer-uppers in Brief: More House for Less Money
A fixer-upper is a property that requires either minor or extensive repairs and can be an ideal option for your first home. However, some refurbishment, remodeling, reconstruction, or redesign is necessary to make this property comfortable for living.
The main selling point for fixer-uppers is that these properties are offered at prices lower than the market rate. So if you love rolling your sleeves or you love challenges, a fixer-upper is an ideal project to take on.
Fixer-uppers allow you to purchase a home in a desirable location that may have otherwise been out of your budget. Additionally, renovating a fixer-upper can add value to the property, making it a wise financial choice in the long run. Truth be told, fixer-uppers aren’t for everyone. These types of properties require a certain mindset and budget.
When shopping for this type of property for your first home, consider its challenge. Is it structural or cosmetic? Structural problems in property require lots of work and include roofing, foundation, and plumbing issues which need extensive repairs. Cosmetic issues in a fixer-upper make the property prettier, including landscaping, painting, flooring, or exterior appearance.
So are you ready to forego the dream of a move-in ready home for a fixer-upper that makes homeownership a reality at a lower price? If so, keep reading.
Why Buy a Fixer-Upper? A Diamond in the Rough
A fixer-upper might not have crossed your mind when you first thought of buying a home, yet this could be the best pathway to your first home. With the right choices, your fixer-upper is a rough diamond worth all the time, money, and sweat. Here are some reasons to consider this for your first home:
- Lower Price Tag
Fixer-uppers are often sold below market value due to their condition, allowing you to purchase a home in a desirable location at a more affordable price. While the property requires some renovations, the lower listing price and downpayment still make this a more affordable option.
- Opportunity to Customize
You might not afford that dream home you had in mind, but a fixer-upper allows you to customize your home to your specific tastes and needs. When you renovate a fixer-upper, you have the freedom to choose everything from the layout to the finishes, creating a home that is uniquely yours.
- Learning Experience
Buying a fixer-upper and renovating the property offers even more knowledge on home improvement. You learn which materials go where, how to plan a home improvement, building code, permits, and more.
- Less Competition
Unlike a ready-to-go home, there’s less competition for fixer-upper homes. This lowers the price and could help you move into the neighborhood you want. In addition, most homebuyers won’t go into a bidding war for a fixer-upper as you would expect for a turnkey home in the same area.
- Opportunity to Increase Value
With a fixer-upper, there’s a greater chance to increase your initial investment. If you choose the right property, your renovations will increase your home’s value and help you build equity.
Costs Involved in a Fixer-Upper as a First Home
One of the biggest blunders you can make when buying a fixer-upper is only looking at the lower listing price. The property requires more money to make it comfortable, and it’s good to understand the potential fix-up costs involved. Unexpected issues can arise during the renovation process, leading to additional expenses.
Some costs to consider when buying a fixer-upper include:
- The purchase price of the home starts with a downpayment.
- Closing costs
- Renovation costs, including the cost of hiring contractors and professionals.
- The cost of permits
- Cost of home inspection to uncover hidden issues and assessment of radon, mold, lead-based paint, septic and well, and pests
- Other fees that may arise during the renovation process
How to Find the Right Fixer-upper in the Market
If you’re sold on a fixer-upper for your home, this could be one of the most exciting investments you’ll ever make. It all starts with finding the right property in a suitable neighborhood. Here are some simple tips to help you find the right fixer-upper to suit your needs:
- Drive around and search for homes in your target neighborhood.
- Search via the Multiple Listing Services, MLS
- Try local auctions, foreclosures
- Visit local real estate investor websites
- Talk to bankers/lenders or check their websites
- Consult a reputable local real estate agent
Before making your choice, consider your needs first. What are you looking for in your first home? Do you have a family? Do you want to flip the house in a few years? Other important considerations include the location, layout, and size of the house and the condition of the home.
Working with a real estate agent and a contractor helps you determine the extent of work required to bring the fixer-upper back into the best condition.
Get a Professional Home Inspection
A professional home inspection is an easy way to know the actual state of the fixer-upper. You’ll pay for the inspection, but it’s worth every penny. In addition to a general inspection, consider specialty inspections covering trouble areas such as lead-based paint pests, sewer lines, radon, and structural inspections.
An inspection contingency is fundamental when buying a fixer-upper for your first home. This clause allows you to back out of a deal in real estate if the inspection report reveals severe hidden defects. The contingency agreement allows you to claim your earnest money deposit if you discover the fixer-upper will require very extensive structural repairs.
Budgeting for Your Fixer-Upper Project
Getting your fixer-upper into shape involves many renovations at a cost. To get things right, budget for this major rebuilding project early enough. Here are steps to create a budget for your fixer-upper:
- Assess the condition of the property and determine which areas need the most attention
- Decide what you can competently DIY
- Research the cost of materials and labor in your area to get an idea of how much you can expect to spend
- Check permit costs with the local authorities and confirm if the work you’re planning requires a permit and the costs
- Factor the cost of financing, which includes a downpayment, closing costs
- Calculate your fair purchase offer to determine if the fixer-upper is a good deal
Consider how much of a renovation loan you qualify for. These are mortgages to finance a house and improvements at the same time. The best package allows you to pay off improvements over a longer period and comes at a more favorable interest rate than ordinary home financing. Some mortgage options for fixer-upper properties include:
- FHA 203(k) loans by the Federal Housing Administration
- VA renovation loans offered by the Department of Veterans Affairs
- HomeStyle mortgage Guaranteed by Fannie Mae
- CHOICERenovation loan: Guaranteed by Freddie Mac
When budgeting for a fixer-upper, remember anything could go wrong during renovations. So leave room in your budget for unexpected expenses, which are common in renovation projects.
Planning Your Fixer- Upper Renovation
With your renovation budget in place, it’s time to get to work. A fixer-upper renovation project takes time and expertise to pull off. Here are some easy steps to follow to get the renovation started:
- Draw a Detailed Plan
For each room in the house, outline the changes you want to make. Consider the functionality of each room and how you can make the most of the space. You should also think about future needs, such as adding extra bedrooms or bathrooms, and plan accordingly.
- Find the Right Architect & Contractor
An architect brings your ideas to life. First, the professional creates a new layout for the fixer-upper to make your dream home. Then, they create plans and blueprints, which might be a requirement when applying for remodeling permits.
A remodeling contractor can make or break your fixer-upper project. A successful renovation project requires an experienced contractor with expertise in fixer-upper homes. Create a shortlist of such contractors in the city and cut down the list through interviews. Leverage the internet to find reviews and testimonials from previous clients.
Ask for local references and check their credentials to verify their reputation. Licensing, professional designations, and insurance are other crucial considerations during the interviews. A reliable contractor evaluates the project using your plan and provides a detailed estimate of the costs. Compare different contractors and choose an experienced, reputable, licensed, and effective communicator.
Before signing the contract, confirm the following details are in the agreement:
- Bid price and payment schedule
- The scope of work
- Site plan
- Schedule of main tasks
- A change-order clause
- A written procedural list for close-out
- An express limited warranty
- Dispute resolution method
- A waiver of lien (This prevents subcontractors and suppliers from putting a lien on a house if the contractor doesn’t fulfill their contracts).
During the interviews for the best renovation contractor, look for red flags such as lack of company details, poor knowledge of the building code, very few or lack of local references, or shoddy work on previous projects.
- Choose the Right Materials
Your fixer-upper project is only as good as the materials you choose. This is your first home and a huge investment, requiring the best quality materials within your budget.
Go online and research different products from different brands, including flooring, countertops, and fixtures. Seek the guidance of your contractor before ordering any materials for your renovation project. The contractor can even get you discounts based on their networks in the industry. The materials you choose should conform to your personal style and the home’s overall aesthetic.
- Manage the Renovation Project Professionally
Managing a renovation project requires time, patience, and resources. If you plan to manage the project, draw a detailed timeline and budget, and establish the best line of communication. Stay in touch with your contractor and have a structured reporting system.
Keep track of all expenses and make adjustments to the budget as needed. To avoid delays or legal issues, stay organized and keep all essential documents and contracts in one place.
- Personalize Your Fixer-upper
The team of renovation professionals helps you customize your fixer-upper through personal touches to make it feel like home. The architect, contractor, interior designer, landscaper, roofer, and any other expert in your team works with you to choose unique features for a custom-built home.
From custom bookshelves, statement light fixtures, different paint colors, textiles, exterior upgrades, new bathroom hardware to kitchen faucets, and flooring to the decor, you’ve myriad ways to give a personal touch to your new home.
The best customization ideas make your fixer-upper feel like a reflection of your personality and style. Consider upgrades that improve the value of the fixer-upper in case you wish to sell it.
A fixer-upper as a first-time home allows you to own property in a location you love and at a lower price. However, this option has a lot more to do with owning a first home. The required renovations come at a cost; you also expect multiple potential challenges.
With the right information, a fixer-upper is the easier pathway to homeownership. You need the right team for the renovations, a detailed budget and plan, and quality materials to transform a fixer-upper into your dream home.
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