Maybe it’s your starter home, maybe you’re looking for a new investment, or maybe you want to kickstart a renovation project…flipping a house can be super exciting. However, investing in a fixer upper is a big financial risk, and it’s a major commitment. If you’re smart with your money and can get a little creative, your fixer upper can be front-page of Better Homes worthy.
So, are you up for the challenge? Here is what to know before investing in a fixer upper.
Investing in a Fixer-Upper is a Big Financial Risk
The most important consideration when flipping a house is the investment. Like any financial decision, there’s risk. The financial prospect may seem simple—buy a house at a steal of a price, flip it, sell it for a profit—but the actual reality is filled with a lot of paperwork and uncertainty.
Make sure you are not only financially prepared for a purchase, but ensure you are financially prepared for all the renovations that come after. Consider:
- Contractors (more on hiring them below)
- Out-of-pocket expenses
- and how you’ll be paying for all of the above.
If you can see a profit at the end of the house flipping rainbow, then you’re ready to get into the real nitty-gritty of investing in a fixer upper.
The Cost of the Fixer Upper
Fixer uppers are often priced at a discount that varies by location, but overall average discount hovers around 8 percent. Do your research ahead of time about the neighborhood, type of house, and the local real estate market to make sure you’re buying the house at a fair price. Your real-estate due diligence will pay off when you’re prepared to negotiate costs, and know what you should be paying for.
The Cost of Renovations
The next financial hurdle of investing in a fixer upper is paying for home renovations. This estimate is trickier to pin down because you’ll also have to anticipate possible repairs and renovations.
Hire a reputable inspector who understands the neighborhood and has experience with inspecting houses that age. Then you can make plans to call in contractors for an estimate or start your plans to do them yourself.
First time home-flippers may want to avoid some renovations. For example, replacing parts of the foundation or a major roof replacement are major projects probably best for a contractor. If you do think you can make some renovations yourself, you might be able to save some money. DIY projects can be super rewarding, but know when to call a contractor.
Don’t forget about permit costs either. Varying by state, county, and township, make sure you’re up-to-date on all permits (or talk to your inspector and contractors) before doing any major renovations on the house.
Bottom-line: While you may not be able to anticipate every single home renovation, your projects should be planned for and estimated (and include a 10–20 percent cushion for unexpected repairs).
Once you know how much you’ll spend on your home renovations, and have a plan in place for the actual projects you’ll get done, then it’s about the financing. While having cash on hand is great, most of us don’t have an unlimited wallet to purchase and renovate an entire house.
Financing in any form, however, can add extra costs to your overall expenses. There are many different financing options available, so do your research and ask around for the options that best suit your needs and budget.
Bottom-line: Make sure that your investment in fixing up a home can actually make a return on investment.
You Can Build It!
That magical moment when the house flipper on TV reveals the final house in its shiny, newly renovated glory? You can get there. While securing a plan and budget for your renovations may seem intimidating, the work you do on your house will not only be worth the finished product, but increase the market value when you put it back up for sale. Your investment can transform your house into a beautiful home for you, your family, and all of its future owners.
This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.