Buying a Fixer Upper House Process
- Determine Your Goals and Budget
- Search the Market
- Build Your Team
- Crunch the Numbers
- Secure Financing
- Make an Offer
- Close on the Property
- Start the Repairs
1. Determine Your Goals and Budget
The first thing you should do when buying a fixer-upper house is to determine what you need and what you can afford. While this process is important whenever you buy a home, it’s even more essential when buying a fixer-upper. You not only need to consider the purchase price and the closing costs, but you’ll also have to factor in the cost of repairs and labor. Plus, if you’re going to put in the work to renovate the property, you’ll want to make sure you are comfortable living there for a long time. So, before you do anything, carefully consider the costs, location, and any other factors that may be relevant.
2. Search the Market
The next step in buying a fixer-upper home is to look at what’s out there in the area where you want to live. Fixer-uppers can run the gamut from homes that only need a few cosmetic repairs to those that require a full gut renovation. So, look at what’s available in the area for the amount you’re looking to spend. You can start by driving around the neighborhood to look for run-down homes, doing an online search, or even contacting a real estate agent.
3. Build Your Team
Unless you’re already a real estate or construction expert, it’s typically wise to hire a team of professionals to help you buy a fixer-upper. Your team may consist of a real estate agent, general contractor, real estate attorney, and any other professional you may need. When buying a fixer-upper home, you’ll want to be sure that you’re making a wise investment and that the purchase price and repairs won’t exceed the price of buying a brand-new home. Otherwise, it would defeat the purpose of buying a fixer-upper. A solid team of professionals will help advise you on the costs to ensure you’re not getting in over your head.
4. Crunch the Numbers
Next, you’ll want to sit down and take a hard look at the numbers and create a plan of action with the help of your team. Are you planning on doing a full renovation all at once or making small repairs as needed over time? Do you need to hire a general contractor and a full crew to handle the labor, or are you planning on doing the repairs on your own? How are you planning on financing the repairs, and what is the cost of the capital? These are all questions you should ask yourself before making an offer to ensure the numbers make sense and you know what you’re getting yourself into.
5. Secure Financing
You’ll also want to consider how you will afford the property and finance the repairs. Depending on the condition of the fixer-upper, a traditional mortgage may not be the best option. Banks will want to conduct an appraisal to ensure the home is worth what you are offering, which may be difficult if it’s in need of significant work. Plus, a mortgage won’t include the cost of the renovations. However, there are other loan products you can research, such as hard-money loans, construction loans, personal loans, and even products specifically designed for fixer-uppers. It may be wise to use a short-term loan to finance the purchase and repairs, then refinance into a mortgage later once the renovation is complete.
6. Make an Offer
Once you feel confident that the numbers make sense and you’ve found the right property, the next step is to put in an offer. One of the benefits of buying a fixer-upper is that the owner may be very eager to sell and willing to accept a discounted offer, especially if you’re able to move quickly. So, talk with your team about what you think will be a fair offer and, if possible, have the liquid cash available to entice the seller. Otherwise, they may get cold feet.
7. Close on the Property
After the seller accepts your offer, all that’s left to do is close on the home. Depending on the circumstances, the closing may be faster and less in-depth compared to buying a regular property. You may not be able to do a final walkthrough, especially if the owner is in foreclosure and wants to close quickly. So, understand that you’re buying the property as-is and assuming all the responsibilities of renovating it to the desired condition.
8. Start the Repairs
Depending on the condition of the home, you’ll likely want to get started with the repairs right away. Although if the upgrades are minor, you can also choose to move in while you’re doing the work. Either way, it helps to have a plan before you even close so you can either start the renovation as soon as possible or make arrangements to move in.
Buying a Fixer-Upper as a First Home
Buying a fixer-upper as a first home can be an affordable path to homeownership for those who can’t otherwise afford it. However, it’s also important to understand the risks and obligations. Buying a fixer-upper can be a good way to get a discounted price on an otherwise expensive property, but they can also become money pits if you don’t carefully analyze the costs and control your expenses.
If you’ve never owned a home before, you may not fully understand the financial responsibilities. For first-time home buyers, it’s usually best to work with an experienced team who can advise you on the process so you don’t get in over your head.
Buying a Fixer Upper Bottom Line
Buying a fixer-upper can be a smart investment, especially if you’re good with handy work and home renovations. However, it also carries added risks compared to buying a property in market condition. So, before you commit, make sure you understand the commitment and associated costs to avoid making a purchase you later regret.