Unless you’ve been living under a rock the last few years, it’s impossible to not have watched -- or at least heard about -- episodes of HGTV™'s show, Fixer Upper™, with Chip and Joanna Gaines. That’s because fixer upper homes can make incredible investments… if you know what you are doing (like Chip and Joanna). Most prospective homebuyers don’t, though, so let’s run through the fixer upper buying process.
Fixer upper houses -- a.k.a. “handyman homes” -- are distressed real estate properties that require repairs and/or remodeling. What makes fixer upper houses for sale so attractive are the asking prices, which are typically much less than traditional turnkey homes in the same area. That’s because the seller knows that the buyer will have to invest additional time and money into updating and improving a fixer upper property. There are often several old fixer upper houses for sale in a given neighborhood, all of which require varying degrees of repair, ranging from big problems such as structural damage to small cosmetic issues such as painting, new carpeting, etc.
Let’s just get one thing straight: There are no definitive, fool-proof “Fixer Upper For Beginners” or “Fixer Upper For Dummies” solutions or resources. Indeed, fixer uppers have the unique ability to be total nightmares and/or absolute goldmines. Your goal, at least initially, is to try and find the middle ground so that you don’t wind up in a financial hole.
It’s pretty easy to spot a fixer upper home because they are often a mess -- overgrown grass and vegetation is the biggest clue. Roofs might be damaged and windows could be broken, too. If you think you have identified a fixer upper home in your area this way, just write down the address and search for it online. Just performing a simple Internet search with the address will more often than not tell you everything you need to know about the home and/or who you can contact to find out more information. Of course, foreclosed homes make great fixer upper projects. That’s because these bank-owned homes are most likely already being sold for deep discounts -- anywhere from 30 to 60 percent below market value (and sometimes much more). If a foreclosed property is a fixer upper on top of being repossessed, buyers can then sometimes negotiate even better discounts.
Location! It’s always smart to look for the ugliest house on the prettiest block. However, if you are considering a fixer upper as a first home, it's best to go after houses that are located in nice neighborhoods and only need minimal amounts of work. Don't be scared off by fixer upper projects that look and smell terrible. These are often easy — and cheap — fixes. That's because just some minor TLC can go a long way when it comes to renovating a fixer upper home. You need to be able to see (and smell) past the imperfections. It’s all about condition and knowing your personal renovation budget limits. Other important factors to consider are configuration and layout because, ultimately, it will determine whether you eventually sell the fixer upper or keep it a “forever” home. In other words, make sure that it has the correct amount of bedrooms (and bathrooms) to either accommodate your (growing) family or appeals to the most buyers when you eventually decide to put it on the market.
Most deal seekers would love to buy a fixer upper house with no money down. But, that’s probably not going to happen very often … if at all. The good news is that since fixer upper properties can typically be purchased at discounted prices, buyers are often able to purchase them without putting down much money. This cost savings, as mentioned earlier, is then used to make repairs and improvements. Accordingly, fixer upper homes can often qualify for government-backed renovation loans such as 203(k), which is insured by the Federal Housing Administration (FHA). Because 203(k) loans are backed by FHA, lenders assume less risk when offering these loan types. As a result, interest rates are usually much lower and it’s easier to get approved if you have bad credit. There is a limit to how much money you can borrow, though, so it’s critical that you have professional inspectors and contractors provide multiple estimates throughout the process. Do your research!