Are you considering buying a fixer-upper? Here are a few things to keep in mind to ensure you are making a solid investment:
- Have a Realistic Idea of What You are Getting Into When Buying a Fixer-Upper. Consider the amount of time and money you will need to spend and be honest with yourself about assessing the costs of renovations, the value of property, and the desirability of the neighbourhood.
- Do the Math. First and foremost, you need to figure out if buying the fixer-upper is a solid investment. It comes down to a simple equation: add up renovation costs (based on a thorough assessment of the house’s condition) and subtract that from the home’s likely market value after renovations. Deduct 5-10 per cent for unforeseen costs or extras you may decide to add during the process. The amount remaining is the offer you should be putting in on the house – make sure you feel comfortable with this number.
- Be Honest with Yourself About Your Personal Situation. How much cash do you have available? Will you have time to oversee renovations and do a few projects on your own?
- Include an Inspection Clause in Your Offer. Based on the inspector’s assessment you will be in a position to negotiate price, or even decide not to buy the home if the amount of work needed is too much.
- Some Houses Need a Lot More Work Than They are Worth. Consider avoiding homes with major structural damage or ones that need plumbing or electrical overhauls, foundation upgrades or extensive roof and wall work. Not only would these jobs require A LOT of work, they are also ‘invisible’ changes that will not bring enough value to your home. Most of these changes will not be apparent to potential buyer and will not offset the costs of the renovations themselves.
- Pick the Projects That Will Offer You the Highest Value Increase. Paint touch-ups, dry-wall repairs and floor refinishing are all relatively small projects that have a great return on investment. New light fixtures, doors, shutters, kitchen and bathroom renovations are sought-after lucrative changes.
- Do Not Over-Improve. For maximum resale value, renovations should not raise the value of your home more than 15 per cent of the median sale price of homes in the area. If homes on your street are selling for about $800,000, putting a $1.5 million home on the market would not make sense. To get a good idea of buyer expectations, walk through other renovated homes in your area, attend open-houses, and make note of the types of upgrades you see.
Be honest with yourself about the amount of time, money, and effort you will need to put in to the home and make sure it is worth it. If you have questions about a particular fixer-upper, or are interested in finding an older home, give me a call at 416- 921-1112 and I will be happy to help.