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Is Buying A Fixer-Upper Worth It?

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The concept of buying a fixer-upper, renovating it, and selling it for more than you initially paid for it is an enticing one — colloquially referred to as “flipping a house.” But while the Internet is filled with amazing stories of brave real estate investors who have made a killing on fixer-uppers, this kind of investment is riskier than it seems. Even if you don’t intend on selling it and you’re simply looking for a cheap house as a first-time homebuyer, you need to consider everything carefully.  

At first, it does seem easy — buys a cheap house, makes a couple of cosmetic fixes, sells it, and makes a hefty profit! There are tons of TV shows that depict well-dressed, good-looking, and incredibly savvy investors that make it all seem fun, fast, and inevitably profitable. 

Unfortunately, the reality is quite different. Usually, the renovation (even with third-party contractors) takes a lot more work than you had initially anticipated. Plus, in many cases, the “final product” doesn’t turn out to be worth the effort, money, and time people sink into it. 

But does that mean fixer-uppers just aren’t worth it?

The answer isn’t as clear-cut as most people would like: it depends on a bunch of factors. Don’t worry though, we’re going to lay out some pros and cons of buying a fixer-upper right here — and some key considerations to make as you enter the process! 

Advantages of buying a fixer-upper 

There are definitely more than a few things that make purchasing a fixer-upper an attractive notion. For one — it’s more affordable than buying a home that’s in pristine condition, at least in terms of the outright purchase price. With the costs of a house deposit and other assorted expenses, it’s not hard to see why this seems like a good idea for first-time homebuyers — or people looking to sell the house to someone else after fixing it up. 

Furthermore, being in the market for a fixer-upper usually means you’re casting a wider net in terms of location — you may be able to afford a home in an area that’s otherwise unaffordable. 

Plus, buying a home that needs fixing and renovations means you’ll be able to truly make it your own and customize all of the elements. From the bedrooms to the kitchen, you’ll be able to pick and choose everything. 

Finally, the ultimate contender for the “pros” column is the value all these things add to the home — allowing you to make a profit, regardless of whether you intend to sell the house immediately or live in it and put it on the market in the future. 

Disadvantages of getting a fixer-upper

Naturally, there are also quite a few disadvantages to buying a fixer-upper — otherwise, this would be a no-brainer. But, in reality, there are plenty of difficulties when purchasing any kind of home, and fixer-uppers bring many unique ones. 

For instance: while upfront costs are lower than while buying a higher-quality home, the purchase price becomes quite a bit higher when you factor in the expenses for all the necessary renovations. From builders’ fees to construction loans — it all comes with a price tag. And if the renovations are mismanaged or the property is in a more significant state of disrepair than you initially thought, the overall cost may be higher than just buying a full-price property. 

Uncertainty is where all of the downsides of getting a fixer-upper come from. Unfortunately, when you get a property in visible need of renovations, ascertaining the number and cost of the fixes that you’ll need to do is more of an art than a science. In many cases, the monsters of unforeseen expenses come out of the closet only when you start the project. 

Plus, if you intend to live on the property and don’t have a primary residence, you need to prepare for an extended period of discomfort. Depending on the seriousness of the home improvements, it may prove impossible to work on the property and simultaneously live in it. 

And even if everything goes right, renovating a fixer-upper is simply time-consuming. A lot of the work involved will require a lot of time, even with the best contractors — putting significant strain on your personal and professional life. 

Should you buy a fixer-upper?

As we’ve mentioned above, there are various factors at play in deciding whether to buy a fixer-upper. And they can all be divided into three categories — time, money, and expertise. 

You’ll need a lot of time

Even if you’re just looking to do this once, flipping and renovating homes is time-consuming work. While it may seem less hands-on than a 9-to-5 job at first glance, it’s actually just as demanding — or more. 

First, you’re not likely to find the perfect fixer-upper in a matter of days or even weeks. It may take months to select and purchase the right property. And once you own it, the real work starts there — you’ll need to put in a lot of time to fix it up properly. For people with day jobs, the time spent on construction and demolition may mean many lost weekends and evenings. 

If you think outsourcing the work is the perfect solution here, don’t hold your breath — the associated expenses will cut into your profits significantly, and you’ll still need to spend a lot of time supervising the contractors’ activities. 

Plus, when all of the work is completed, you can’t just put it on the market right away. You’ll need to schedule some inspections to ensure that the current state of the property is in compliance with the applicable building codes first. And if the answer is no, that just means spending more time to make sure it’s up to par. 

Finally, the actual process of selling the property is a time investment in and of itself. Using experienced real estate agents is undoubtedly recommended — but even then, it may take a while. And if you decide to cut costs and find prospective buyers yourself, you’ll need to spend a lot of time on meetings and commuting to the property for house showings. 

Considering all of this — is it worth it? If you have the knowledge and the money required for this to be a less risky investment, then it’s definitely not a bad idea. However, without decent financial security and real estate knowledge, sticking to your day job is probably the smarter option. Also, if you’re the kind of person that values their free time immensely, you’re not the ideal candidate for house flipping or a fixer-upper. 

Make sure you’ve got the knowledge 

Contrary to what many people think, buying a fixer-upper and getting it to a more respectable state isn’t something anyone can do. While there’s no school for flipping houses, it requires a lot of knowledge, expertise, and above all — the right instincts. 

For instance, you need to know how to choose the best possible home — and that means knowing the difference between a house that requires cosmetic fixes, like some landscaping or switching out unattractive awnings, and a house that has structural issues.

Cosmetic changes generally don’t require a lot of money and a bunch of different contractors; making homes that only require such changes the perfect candidates for your fixer-upper. On the other hand, structural problems usually mean you’ll want to pass on the house and keep searching — they’re time-consuming to fix, not to mention prohibitively expensive. 

You need to know how to spot plumbing problems, termites, walls that need knocking down, or issues with the foundation. Alternatively, you need the right connections — more seasoned real estate professionals that know to recognize a lost cause when they see one. Also, even if you buy a house and start renovating, you’ll need connections with tradespeople and vendors when the renovations begin to keep the costs as low as possible. 

Remember, though — home inspections are done closing on the house and after the bid has been made. So if this inspection uncovers any deal breakers, make sure to call the whole thing off immediately. 

Also, even if the house you end up buying is a great fixer-upper, you’ll need some expertise to renovate it properly too. If you want to maximize your return on this investment, researching and reviewing the latest design trends for the interior is a must — and having some DIY handiness isn’t a bad thing either. 

Homeowners that can do some of the renovations themselves stand to make the biggest profits, and even if you outsource this to contractors you’ll still need some basic knowledge to supervise their work. 

It’s more expensive than you think

Finally, there’s one more thing you’ll need to flip a fixer-upper — money. As in, more money than you probably think. As we’ve talked about already, it’s not just about the property’s list price; you’ll need money for the renovations as well, even if you get the seller to lower the price due to the extent of the needed repairs. So, make sure you consider these expenses when you’re negotiating on the price — a factor that into your overall budget. 

If you’ve set aside enough money for the estimated repairs or you plan to cover this with a loan — ensure that you’re working with the most realistic cost estimate that you can make. And then add something like 20% on top of that for unexpected costs. 

Even if you manage to estimate material and contractor costs precisely, you will still have additional expenses you probably haven’t considered — missed days at work because you were dealing with contractors, repairs going awry, etc. 

Speaking of contractors, this is one thing you don’t want to try saving money on, seeing as shoddy work will just cost you more down the line or reduce your profits when buyers become aware of the questionable quality of the renovations. Instead, hire professionals that won’t cheap out on crucial parts of the process. 

On the other hand, it’s important not to go overboard with renovations and make the house prohibitively expensive for its surrounding area. For example, the average delta box 4-5 bedroom home with 2 bathrooms home in North Delta goes for 1.3 to 1.4 million, so make sure you factor in the local real estate prices into your calculations. 

Is it worth it?

There’s no getting around the fact that buying any kind of home is a sizable investment — and though a fixer-upper may seem like the more economical option at first, you need to manage your money carefully to ensure that’s the case. 

However, provided you have enough time and money to put into this and you’ve got enough expertise and professionals backing you up — getting a fixer-upper still represents a solid investment opportunity. 

 

 

 

 

 

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  • Sukh Brar Real Estate Group

    Sukh Brar Real Estate Group
    (604) 648-7800
    sales@sukhbrar.ca
    Top 1% Realtor according to the FVREB 2014-2019