Whether you’re a first-time home buyer or a seasoned pro, it’s no secret that buying a house can be an expensive ordeal. If you’re willing and able to put some work in, you may be interested in purchasing what’s referred to as a “fixer-upper,” which may give you the benefit of buying below market price.

Buying a fixer-upper has both pros and cons. Weighing them against each other is the key piece of the equation when it comes to determining if this is the right move for you, your finances, as well as your time and effort.

What’s a Fixer-Upper Anyway?

Fixer-upper properties are oftentimes available for a lower purchase price, because they can require major work in order to become comfortably livable. However, many homeowners are unable or unwilling to bite off this amount of work even for the lower sticker price. In addition, fixer-uppers may have structural and/or cosmetic damages, and when looking at such homes, it’s important that potential buyers have an idea of what type of improvements they’ll be looking to make in the near future.

Key characteristics of a fixer-upper include required repairs, such as plumbing, roofing, flooring, electrical, or others. Often, they also have outdated features like old kitchens and bathrooms that are in need of modernization. Issues can range from cosmetic updates to significant structural repairs that may impact the livability of the home.

Top 4 Pros of Buying a Fixer Upper

Naturally, the pros of buying a fixer-upper need to outweigh the cons in order for the decision to make sense. Check out these benefits of opting for a fixer-upper to determine if they’re in line with your goals and expectations.

Lower Purchase Price

This is arguably the number one pro of a fixer-upper — a lower price! When compared to a move-in ready home, a fixer-upper home should be comfortably cheaper. Not only does this make the home more affordable, but in some cases, buyers can secure a bigger house than their budget would have allowed them to otherwise consider. A real estate agent can help you manage negotiations, handle all the paperwork, and ensure that the entire process runs as smoothly as possible for you when it comes to securing the fairest price.

Less Competition

Generally, there are fewer potential buyers for fixer-upper homes as opposed to the broader pool of potential buyers looking at move-in-ready houses. This may lead to sellers being more motivated to sell, which can give interested buyers an edge. Fixer-uppers require more time, money, and effort to renovate — which is less appealing to a significant portion of the buying pool and can weed out a lot of competition. Another thing to keep in mind when thinking about a fixer-upper is that buyers may face financing challenges, as traditional loans may not cover extensive renovation projects. Specialized financing may need to be secured in these instances, such as renovation loans.

Potential for Customization

Another significant draw for buyers interested in purchasing a fixer-upper is the potential and the freedom to shape the home in accordance with their personal preferences and the needs of their family. Whether this means creating an open floor plan, choosing new finishes and color schemes, or even replacing windows and doors to modernize the exterior of the home — many buyers enjoy the flexibility to make the home their own. If the fixer-upper needs systems replaced, homeowners will also have the opportunity to replace outdated tech with energy-efficient options and smart home features.

Positive Property Value Growth

When chosen correctly, the equity-building potential of a fixer-upper can be significant. Thoughtful renovations, such as updated kitchens, finished basements, and even exterior curb appeal can raise the overall value of a home by tens of thousands of dollars. When you buy a fixer-upper at a lower price and invest in some key renovations, you may be able to see your equity rise quickly. Focus your time, attention, and energy on high-return projects to get the best return on your investment. The location of the home is also key, as up-and-coming areas will boost the home’s value in the long run. Renovations take time, so consider the long-term appreciation of a fixer-upper as the neighborhood develops over the course of several years or even a decade plus!

Top 4 Cons of Buying a Fixer-Upper

On the flip side, it’s also important to weigh the potential downsides that fixer-uppers can be notorious for. Whenever and wherever possible, you can mitigate risks but smart buyers should be prepared for the unexpected regardless.

Pricey Repairs

Despite being more affordable upfront, fixer-uppers can require a multitude of projects that can quickly exceed your budget if you’re not careful. Buyers who didn’t take the time to create a list of projects and their associated costs before closing the deal may find themselves underwater. Escalating expenses can feel overwhelming if you haven’t prepared for them. Major structural issues such as a shifting foundation, a damaged roof, or issues with a load-bearing wall demand immediate attention and require sufficient funds. Other expensive repairs can include mold remediation, water damage, and pest infestations such as termites or rodents that can add up to thousands of dollars once it’s all said and done.

Managing Construction Disruptions

Not everyone is capable of living in a construction zone, especially for an extended period of time. If you’re planning on renovating a fixer-upper while living in it, understand that there will be interruptions to daily life such as dust, noise, and ongoing work that can be inconvenient at best and downright disruptive at worst. Renovations are notorious for taking longer than expected, whether this be due to contractors’ schedules, permits, or even material delays. In addition, homeowners will likely be faced with temporary loss of functionality to key areas of the home, such as the kitchen or the bathroom.

Hidden Problems

When a home is in visible need of repairs and renovations, there are likely additional issues lurking under the surface. A licensed inspector can help you uncover these before they turn into surprises, but you may still find something cropping up within a few months or even years of moving into a home. Build in a budget contingency, which can be an allocation of 10% of your renovation budget that’s penciled in for plumbing leaks, mold, or structural repairs. This cushion can help prevent financial strain and stress down the line.

Increased Risk

While buying an inexpensive fixer-upper house may seem inherently less risky, there’s always the potential that you’ve over-invested if you haven’t done your homework. That’s why estimating renovation costs, determining the after-repair value of the home, and comparing these numbers to your budget are so key to the process. Market fluctuations and location challenges can also impact your potential future gains. You can mitigate these risks by practicing disciplined decision-making. Follow the 70% rule, prioritize high-impact renovations, and always inspect before you invest!

Key Tips to Keep in Mind When Looking at Fixer-Upper Homes

If you’ve decided that you want to go the fixer-upper route, keep these tips and tricks in mind to ensure that the process goes as smoothly as possible and you avoid any unpleasant surprises down the line.

Secure a Home Inspection

A home inspection typically runs buyers a few hundred dollars. This is non-negotiable when you want to buy a fixer-upper and is typically recommended when you’re looking to buy any home for that matter. An experienced home inspector will be able to perform a thorough and detailed investigation of the prospective home, ultimately providing a report that outlines the repairs the house will need. Without such an inspection, buyers may not even know if the house is in dire need of new plumbing or if the foundation is showing signs of cracking. Invest in a quality home inspector to save yourself unpleasant surprises down the road. The inspection report can also help you to prioritize projects and plot out a renovation budget.

Approximate Your Renovation Budget

Buying a fixer-upper means that you’ll need to plan on renovation costs to turn the space into the home of your dreams. Create a budget by listing every project you plan on tackling and pricing out materials, the cost of labor, and any required permits. This can be done via online research or by securing quotes from local contractors. It’s difficult to lock down a precise cost for everything, so use your best estimate to get into the correct ballpark range. Once you’ve completed your project list and estimated your renovation costs, you can decide if the price of the home is worth the investment. The common rule for determining if a fixer-upper is a worthwhile investment is to estimate the home’s value after repairs. The purchase price plus the cost of renovations should equal no more than 70-80% of the after-repair value (ARV), which leaves room for equity growth in the long term.

Avoid Overpaying

It shouldn’t come as a surprise that the whole purpose of a fixer-upper is that you can get a good deal on the purchase. If you decide that the home has potential, then make an offer that takes into consideration the cost of the necessary renovations and repairs. When putting in an offer, you can include contingencies. Contingencies allow buyers to withdraw from a deal if certain circumstances aren’t met. Common contingencies include an inspection contingency, an appraisal contingency, a financing contingency, and even a pest inspection contingency. Sometimes, a “repairs required” contingency is put in place that specifies which repairs the seller must complete before closing. If these conditions aren’t met, the buyer can back out of the deal. Negotiate a selling price and use any flaws and damage to gain bargaining leverage. An experienced real estate agent can help you formulate a fair offer, determine contingencies, and handle any counteroffers.

Work with a Team of Professionals

Seeking out a helping hand or two when buying a home is the typical experience for many homebuyers but it’s especially helpful when you’re in the market for a fixer-upper. Obtaining quotes from licensed contractors can help you accurately estimate your renovation costs, and a professional real estate agency can guide you through the process of pricing, negotiation, and understanding the market potential of the home. Real estate agents not only offer their guidance and support, but can bring invaluable expertise on neighborhoods, market trends, and access to off-market properties. This can make all the difference when it comes to a smooth home buying experience over a difficult one.

Now the Choice is Yours!

Overall, purchasing a fixer-upper home can be a rewarding decision for many homebuyers. Whether you’re looking to find a great deal or to get more square footage per dollar — fixer-uppers come with their share of benefits. On the flip side, buyers should be aware of the cons that go hand in hand with fixer-uppers, such as living amidst construction projects and budgeting for unexpected expenses. Teaming up with an experienced real estate agent can help you avoid the common pitfalls many buyers face when buying a home.