By: Zolo.ca Staff Writer
Fixing up an undervalued home can be a lucrative endeavor — if you’re patient and disciplined.
You’ve decided to take the plunge and buy a house. But you know the deals are hard to come by for anything move-in ready, so you’re going to buy a fixer-upper. With a little sweat equity, you can have a beautiful house at a substantial discount.
But beware. If you let your demolition dreams run wild, you could find yourself fixing your sanity and finances rather than your kitchen and bath.
Follow these tips for a rewarding renovation experience in buying a fixer upper.
It’s still all about location
Fixer-uppers still obey this first law of real estate. Renovating a below-average home in a below-average neighborhood offers limited upside potential. Even if you do a great job, you’ll still be living in an undesirable part of town, which hampers your resale value.
This principal is especially true over time. The longer you keep a house, the more important its appreciation becomes compared to the value of your sweat equity.
So wait for a below-market fixer upper in a good neighborhood. Online real estate search tools help make this process easier.
Know how much you can do yourself
The biggest bang for your buck is the work you can do yourself. Try to match the repairs needed in the house you buy to your own skill set. But be honest about what you know how to do and what you have time for. Better to admit your roofing prowess is more theory than reality before it leads to water damage in the attic and a mold bloom.
Every fixer-upper is a risk. Even if you get a home inspection — and you should always get a home inspection and always make your purchase offer contingent on that inspection — you can still run into expensive problems that you didn’t see coming. (Foreclosure properties are even riskier as they are generally sold as-is.) Which is why price matters. The renovations you expect to make, plus the cost of the house, should be much less than the expected value of the house after you’ve fixed it up. If it isn’t, you’ve left yourself no room for error.
Don’t become house poor
Home improvement spending is at its highest in the U.S. since the real estate bubbled–fueled years of 2005–07. Renovation can be addicting. Once you start down that path, it can be hard to stop. Before you know it, you’ve blown your budget and are swimming in debt payments. This, again, leaves you no wiggle room should an emergency arise.
It also makes little sense come resale time. The National Association of Home Builders recommends that your renovations should not raise the value of your home more than 15 percent above the median sale price in your neighborhood.
Check on permitting beforehand
Building permits are a frustrating but necessary part of home renovation. Check with city hall before you buy to see if the work you intend to do will require a permit, how much the permit costs and what can cause the permit application to be rejected. For instance, some towns are strict about granting variance requests, so that garage you want to build that’s a little too close to the property line might not be in the cards.
Buying an undervalued property with good potential and fixing it up yourself is one of the best financial decisions you can make, but it is not without risks. But with patience and discipline, you can help ensure a profitable experience.
Zolo.ca is Canada’s largest private real estate brokerage. Zolo.ca is a full service real estate, brokerage and mortgage company that has real estate agents throughout Canada. Zolo.ca’s online real estate marketplace has over 8 million Canadian homes and up-to-date MLS listings.