I was recently asked by a member of the media: What are the pros and cons of buying a fixer-upper instead of a turnkey home? This is what I told them:
These are the pros of buying a fixer-upper:
- Taxes are less: Most residential property taxes are calculated using the most recent purchase price of a property. As a homeowner, you will pay less when buying a “handyman special” than, say, a freshly renovated, walk-in-ready home. Sometimes, if done properly, a homeowner can apply for energy-efficient tax credits when doing certain renovations which can help the bottom line as well. And finally, most of the money you do spend on the renovations can count towards your bottom line and can go towards your capital gains tax when it comes time to sell the home.
- Flip potential: When purchasing the property, you should look around the area at similar homes to see what the other fixed-up ones are selling for. If executed properly, your home should be worth more than what you paid for it and spent in upgrades/renovations. As a general rule, try to stick to houses that only need cosmetic work, as opposed to structural. This will save you a whole lot of heartache and will make it easier for you to turn a potential profit.
- Creativity: One of the best parts of buying a “handyman special” is that you can really make it your own. You can choose everything from start to finish. Depending on how much you decide to do, it can be anything from the color of the paint to the cabinets in the kitchen and beyond. When you buy a home that is all fixed up, you usually won’t have enough money to change anything, and usually will just settle with what’s there. Sure, you may like it, you may even like it a lot, but it’s not going to be exactly what you want.
And now, here are the cons of buying a fixer-upper:
- Renovation costs: Prior to bidding on a property, try to calculate how much work the home will need, and how much this work is going to cost. If you have the time and the ability, it’s recommended to speak to at least three different contractors and get three separate itemized quotes. In addition, I would also suggest getting a separate quote for labor and materials. Always include a 20% cushion of the entire budget for unforeseen expenses.
- Effort: Fixing up a house is a grueling and stressful process. Most remodels can take anywhere from 3-9 months. You need to be prepared for your living quarters to be a “war zone” for quite some time. If you’re not up to dealing with contractors yelling at you, nagging and nosy neighbors, and unforeseen leaks here and there, a brand new, fully cleaned up home may just be the thing you need.
