Fixer Uppers: Mass Profit or Money Pit?

Euphemistically known as “original condition” or “handyman special”, a fixer upper generally appeals to two categories of people: The first-time homebuyer and the investor.

Why a Fixer Upper?

For first-time home buyers, the benefits are two-fold: Affordability and location. Simply, wannabe homeowners can afford more square footage in a better neighborhood. Repairs can be spread out over time to avoid costly upfront expenditures, and in the process, the homeowner becomes a seasoned DIY’er.

As an added bonus, with completion comes a special sense of accomplishment and attachment to the new home sweet home.

The investor is motivated primarily by profit. It’s riskier to buy a house with the sole intention of turning it around for a quick profit, so a good investor studies the real estate market closely. Because the market is cyclical, the best time to buy is in an upturn just after bottoming out.

The term fixer upper applies to varying degrees of disrepair, so how do you know if it’s worth the money and sweat equity?

Do the Math A bargain basement price tag should not be the only factor in choosing whether to purchase a fixer upper. While the general rule is to look for a house discounted 25% off the neighborhood comparables, it’s necessary to carefully calculate the cost of all repairs and improvements to determine if the price reduction is adequate.

First, assess the home’s future value after fixing it up. Research the price, square footage, and lot size of other houses within close proximity. Then, come up with a cost repair list by assigning each improvement an estimated price. Take care to be as accurate as possible, and don’t forget to leave a little wiggle room for unexpected expenses. Finally, add the cost list to the property’s current selling price. If that figure equals or exceeds the future value, take a pass and keep looking.