The possibility of buying a fixer upper can be irresistible. You found the perfect home in a desirable neighbourhood at a low price, and with a little time and money you get to renovate it to make it your own. Sounds great right? Buying a fixer upper can be an amazing opportunity … but not always. Before you take the plunge read our tips to make sure you have a realistic idea of what you’re getting into.
Types of Fixer Uppers
A fixer upper is a home that is priced lower (hello, lower down payment) because it requires a significant amount of maintenance or work. Generally, this type of home has not been renovated recently or at all. Fixer uppers can come in a wide range of conditions - it may be a full gut or is livable and just needs some upgrades.
Gut
A gut is a home that is usually older and will need to be taken down to the studs. You’re looking at re-doing almost everything in the home, and not just the fun stuff like flooring and fixtures. Plumbing, HVAC, and electrical will all need to be updated. Insulation will need to be added if it wasn’t present in the home before the renovation, which is quite common in older homes. This type of renovation takes a lot of planning and permits to accomplish. You want to make sure that the neighbourhood allows the changes that you want to make, like adding additional square footage.
It's important to have a contingency fund in these types of renovations. You never know what you’re going to find when those walls come down, and with an old home surprises like asbestos are a very real possibility. Which leads me to say, I recommend having at least some renovation experience or have renovation connections with a gut because it can be a huge undertaking. It’s usually best left to someone with experience and capital. You’ll want to be prepared for a gut to take several months at the very minimum, and plan out somewhere else to live during that time that has the option to extend your stay in case the renovation takes longer than anticipated.
Move in Ready with Cosmetic Updates
A wide range of homes fit into this category, but in general it’s a livable home that’s in need of cosmetic upgrades. This type of renovation entails more than just adding a coat of paint, you would be looking at re-doing a kitchen or bathroom or even a whole floor. It is really important to have an inspection report done on this type of home. If you are not stripping it to the bones, you should be aware of all the elements of the home and whether they need to be updated as well, or if previous upgrades were up to code. Having a contingency fund is just as important in smaller renovations since you never know what may come up.
Depending on the amount of work that you're getting done, smaller renovations will still take couple of months or longer. With a shorter timeframe and less work being done, these types of renovations are a better option than a gut for someone with little to no experience.
Estimating Renovation Costs
You want to make sure you can comfortably afford each home that you are considering buying. Make a list of every project you would potentially complete and estimate the cost for each home you’re thinking about offering on. Do some research and get quotes from contractors. Even if you don’t end up with the exact cost for everything, having estimates to work with is valuable to help budget and determine if the investment is worthwhile.
Financing a Renovation
Saving is difficult, especially in today’s economic climate. If you don’t have any extra savings, don’t let that stop you from considering buying a fixer upper. There are a few options that can help finance the renovations. If you are planning minor renovations, options like a line of credit or a personal loan are a great choice. They are convenient and quick to set up and access which can be helpful when you are planning to put in an offer on a home and want to quickly know how much capital you will have to put towards renovations.
If you are planning extensive renovations or a full gut, you may want to consider a renovation mortgage. Unlike a line of credit or personal loan, this type of mortgage is meant only for the purposes of renovations. You’ll have a longer pre-approval process but get added benefits like a lower interest rate, lower monthly payments with a longer amortization rate, and access to a higher amount. It’s important to note that banks have different pre-approval criteria for renovation mortgages so if this is something you’re considering, look into it early to see if it’s a viable option for you.
Should You Buy the Fixer Upper?
In the end each home will have its own unique set of circumstances, and one home may be a good idea for one buyer and not another. Consider your budget, needs, wants, and lifestyle before moving forward on any purchase. At first glance a fixer upper may seem like the deal of a century that you can’t pass up. Once you do your homework and realize how much you need to spend on repairs and renovations, you may have a different opinion. Throughout my years in real estate, I’ve seen a full range of homes that need a little to a lot of work, and I’ve gone through my own renovations, small and big. If you’re wondering if a fixer upper is right for you, I’d love to help, and use my experiences to answer any questions you may have.
