Is That Fixer-Upper House Really Worth It?
By: Melissa Dittmann Tracey
Published: March 13, 2024
Buying a fixer-upper home can be a gamble; here are ways to come out on top.
Purchasing a fixer-upper home — one in need of some TLC — could mean scoring a home at a major discount, renovating it into your dream home, and possibly even doubling its value, or more.
As home costs soar, fixer-upper homes for sale appear to be gaining appeal. A consumer survey from RE/MAX found that 56% of 1,000 prospective home buyers would consider purchasing a fixer upper in need of remodeling if it meant getting a lower price. And it didn’t matter whether the remodeling was cosmetic or structural.
Potential savings is only one aspect of buying a fixer-upper home, though. You’ll want to take steps to make sure your choice is right for you in ways other than price.
15 Tips to Guide Your Decision About a Fixer Upper
Here are 15 actions to take before making a final choice.
#1 Consult the Pros for Fixer-Upper Advice
A real estate agent is key to determining the home’s value and can guide you through the process, from identifying fixer-upper houses for sale to calculating the potential post-renovation value. They can also recommend reputable contractors, who you’ll likely rely on for the renovation. In vetting contractors, ask for photos of and references for past projects.
#2 Gather Contractor Opinions and Estimates for the Fixer Upper
Bring in contractors to walk through the property and price out renovation costs before making an offer. Ask contractors for a written cost estimate (including prices for materials and labor). “To determine your budget, it is important that the contractors’ estimate be itemized so that you can clearly distinguish between what you ‘need’ and what you ‘want,’” says Jared Blumberg, a real estate agent with Compass and co-founder of Werner Blumberg Group in New York, N.Y. Also, “you’ll want to consult your real estate agent and make sure whatever you plan to update is not just appealing to your needs, but also the needs of the next buyer.”
#3 Consider What You Can DIY on a Fixer Upper
Taking on some home renovations yourself could save you up to three-fourths of the project costs, according to the U.S. Census Bureau’s American Housing Survey. Projects that carry higher labor costs — like adding landscaping or insulation, building a deck, or replacing windows — tend to offer the largest savings through DIY. But be realistic about your expertise and skill set. Taking on projects that are too difficult could result in delays, costly mistakes, and unprofessional results that could hurt your home’s value.
The Census Bureau study spotlights some of the potential cost savings from DIY:
Adding new landscaping
Estimated professional cost: $4,702
Estimated DIY cost: $1,191
Cost savings: $3,511
Redoing a bathroom
Estimated professional cost: $11,080
Estimated DIY cost: $3,776
Cost savings: $7,304
Replacing windows
Estimated professional cost: $5,419
Estimated DIY cost: $2,002
Cost savings: $3,417
Replacing insulation
Estimated professional cost: $2,997
Estimated DIY cost: $1,120
Cost savings: $1,877
Installing a deck
Estimated professional cost: $9,314
Estimated DIY cost: $4,103
Cost savings: $5,211
#4 Figure in Permit Costs for Large Fixer-Upper Projects
Large-scale home improvement projects typically require permits, which could cost $400 to $2,500 and up, according to Angi. For example, adding rooms to a house or work on the home’s plumbing or electrical often requires permits. Municipalities want to ensure projects are done correctly, safely, and up to code. Check your local rules about permits. Ask your contractor if they’ll be filing the permits on your behalf or if you’ll need to.
#5 Factor in Alternative Living Arrangements While Your Fixer-Upper Is in Progress
Consider where you’ll live while renovations are completed. Smaller or contained renovations, like redoing just a single bathroom, may not require having to relocate. But larger projects — like home additions or the removal of asbestos or mold — may require alternative living space, like an extended stay hotel. This can add $2,000 to $10,000 or more to your costs, depending how long you’ll need to relocate, according to Angi’s estimates.
#6 Put the Fixer Upper to a Comps Test
Your real estate agent can review homes that are similar in size and in the area to help assess the home’s value now and after renovation. They’ll find comparable houses that have recently sold and take an average price per square foot to determine what the house may be worth — an important data point in framing a fair offer.
#7 Calculate a Fixer Upper Fair Purchase Offer
Consider the home’s current versus potential value based on the improvements you have planned. One way is to subtract the estimated costs of upgrades and repairs from the fair market value of the property (or what it would be worth if it was in good condition). That could be your offer price.
However, it’s not always that simple. “It may be tempting to subtract the price of the remodel from the asking price, but sellers are not going to be convinced of that equation,” says Christine Dupont-Patz, a broker and co-owner of RE/MAX of Cherry Creek in Denver. “In some low-inventory markets, even homes that need a lot of work may get multiple offers.” Consider the remodeling costs, the potential payback, and the realities of the marketplace in framing your offer, she says. “Having a realistic budget will help keep you on track and prevent buyer’s remorse later on.”
#8 Complete Inspections for the Fixer Upper
A home inspector looks beyond the home’s aesthetics to evaluate the home’s systems and mechanics. “Inspectors are crucial in helping to find hidden problems,” Dupont-Patz says. “So many issues can’t be seen until you get an inspector in the home.” An inspector can check the home’s systems to determine if any repairs are needed, she says. You might consider additional inspections for radon, mold, lead-based paint, septic, pests, or termites and the foundation.
Daniel Cabrera purchased his first fixer upper in Granite Shoals, Texas, in 2012 for just $30,000. He says he expected the home’s post-renovation value would be five times what he paid for the property (an estimated $150,000). Shortly after purchasing it, he realized the full extent of the repairs needed, including work on a faulty foundation and a missing HVAC and sewer and septic tank. Cabrera’s original $25,000 budget wouldn’t cover it all. He quickly resold the home to an investor and learned a tough lesson: Never jump in without full-cost analyses and inspections upfront. Cabrera, now the owner and founder of Sell My House Fast SA TX, has since renovated 200 fixer-upper homes, primarily in Texas and parts of Ohio. He says he has often doubled or tripled the post-renovation value of those homes.
#9 Leverage a Home Inspection Contingency
Depending on how competitive the housing market is, you may be able to leverage the results of a home inspection in your purchase offer. With a home inspection contingency, you could negotiate with sellers to make repairs or request cash at closing. However, sellers don’t have to agree; they could cancel the deal. Also, if the home is being sold in as-is condition, you likely won’t have the opportunity to negotiate repairs.
#10 Beware Budget Busters and Hidden Costs for a Fixer Upper
Don’t get so caught up with the finishes — like the paint, tile and flooring — that you ignore the major systems, says Dupont-Patz. “Ugly paint is an easy item to fix; updating an electrical system is not. Make sure the major systems — electrical, HVAC, and plumbing — are sound or at least that you have the budget for their upgrades. In terms of kitchens and bathrooms, the more fixtures you move, the more expensive it will be.”
Indeed, “some of the biggest costs that often get overlooked are generally the less ‘fun’ items,” Blumberg says. “Your project may require that you upgrade the electrical or plumbing. Depending on the job, you may need to involve an architect or engineer, which can all result in special permitting. These can be big ticket items that may not be avoidable. A great contractor can prepare you for this when deciding if the project makes sense for you.”
Also, seemingly small projects can quickly add up. For example, changing a room’s floor plan by knocking down or building new walls or rerouting electrical work or plumbing could easily cost more than $10,000, according to Angi.
Be leery of big-ticket items like structural problems. A foundation repair averages $5,000; a foundation replacement could cost $20,000 to $100,000. Consult a structural engineer if you suspect problems and get repair estimates in writing.
#11 Cushion Your Fixer-Upper Budget
Have an emergency fund. “Add on, at the very least, a contingency budget of 20%. “Always build contingency money into any fixer upper,” says LeAnne Carswell, broker-in-charge and owner of Expert Real Estate Team, operating in South Carolina and North Carolina. “There are always hidden costs that will pop up. Make sure you get several bids for the work. Keep an eye on the value of the final product — what it is likely to appraise for — to ensure you aren’t stuck coming up with more cash out of pocket than you intended.”
#12 Line Up Fixer-Upper Financing Beforehand
Set aside enough money for the renovation and also the down payment and closing costs (without completely draining your savings). If you’re planning to fund the repairs with a home equity or home improvement loan, get preapproved for both loans before submitting an offer for the home. Consider making an offer contingent on getting both the purchase money loan and the renovation money loan. That way, you’re not forced to close the sale when you don’t have a loan to fix the house.
#13 Look into Fixer Upper Special Financing Options
Home renovation loan programs can help fund renovation costs. The Federal Housing Administration’s Section 203(k) program and Fannie Mae’s HomeStyle loan are popular home remodel loans. They’re designed to help homeowners purchase or refinance a home that needs rehabilitation, by allowing them to finance the purchase and renovation of a home into a single loan.
#14 Prioritize Fixer-Upper Projects for Greatest ROI
To get the biggest bang for your buck, focus on the repairs and improvements that can change the value of your property. This can make your investment pay back over the long haul. Your real estate pro can help you pinpoint projects for resale. Also, the National Association of REALTORS® and the National Association of the Remodeling Industry publish the “Remodeling Impact Report,” which highlights projects that tend to offer the biggest returns at resale.
#15 Determine Your Risk Tolerance Before You Decide on a Fixer Upper
Buying a fixer upper isn’t for everyone. “Fixer uppers are a lot of work, but they can also be very rewarding, both personally and financially,” Blumberg adds. “If done right, [for] every dollar you put into a project you could get out $1.50 to $3” when you go to sell one day.”
But, when considering a fixer upper, be upfront about what you can handle: “Be very clear with your real estate agent about what types of projects you’re willing to take on,” says Dupont-Patz. “For some buyers, a fixer upper means they only want to do cosmetic changes. For others, they’re comfortable removing walls or dealing with structural issues.”
That said, “finding a fixer upper is a great way to get into home ownership,” she adds, especially when finding a home in your ideal neighborhood. “With any renovation project, the most important things to have are patience and flexibility. Projects invariably take longer than planned and may not exactly result in everything you imagined. But with careful planning, you can create a home you love.”
Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.
Michael Kogler, REALTOR
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Long & Foster Real Estate | Luxury Portfolio International
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