I’m going to reveal a very private secret of mine: Jonathan & Drew Scott from Property Brothers are my heroes. And if you don’t know who I’m talking about, then we can never be friends because it’s obvious you’re not addicted to HGTV like I am.
If you are addicted to HGTV and shows like Property Brothers or Fixer-Upper, or if you’re thinking of tackling your own fixer-upper project, then this article is meant for you.
Fixer-uppers have grabbed the attention of many prospective homebuyers, mostly because of the shows on HGTV. People watch a 30-minute episode, see some happy couple take a few swings with a sledge hammer, watch as way too much shiplap is installed and then voilà, their dream home is ready.
What HGTV doesn’t show you is, in my opinion, what’s most important. If you’re like me, you probably wonder how those happy couples afford both the home and the renovation. Or perhaps you’re curious about what goes into planning and successfully executing a renovation project, or how to even find the right fixer-upper in the first place.
Let’s take a step back first and answer the question of “why a fixer-upper in the first place?”
It’s no secret that the real estate market has been, and currently is, tough. Inventory is super low, and turn-key homes are generating multiple offers and usually selling for over asking price. This makes it harder to get the home you want at a price you can afford. Fixer-uppers, however, present an entirely different market – one in which smart, savvy buyers can come out on top of. The process can seem scary, but for homebuyers who do it right, fixer-uppers can present the best opportunity in terms of getting exactly what you want in a home at an affordable price.
There’s drastically less competition for fixer-uppers, and most of it comes from investors. But, if you’re an end-user (that is, you plan to buy, fix and occupy the home instead of flipping it) you’ll almost always be able to out-compete investors because you don’t need the re-sale margin they do.
This puts you in a position of strength when it comes to negotiating the sale and getting the price and terms you want.
Buying a fixer-upper isn’t much different than buying a turn-key home. The biggest difference is what financing instrument you use to buy it, which begins to answer the question of how those happy couples on HGTV afford both the home and renovation. There are financing products available that allow you to finance both the purchase of the home and the renovation, so you simply have one loan that covers everything. Some of these financing options are simple and some are complex. The right option depends on your situation and goals.
There are other financing options as well, such as obtaining one loan to cover the home purchase and another to cover the renovation. You would then re-finance the home once the renovation is complete and consolidate both loans into one.
The next biggest difference between buying a fixer-upper and a turn-key home is that more due-diligence is necessary during your inspection period, and it needs tailored towards the specific renovation you’d like to complete. Thoroughly inspecting a home is important with any purchase, but with a fixer-upper it’s even more important so you know what you’re walking into. Let’s just assume you want to add a bathroom to the house. Adding a bathroom really isn’t that difficult or expensive – but it can be if the house doesn’t have the right infrastructure in place, specifically the right size sewer and water line in this case. Whether or not the right infrastructure is in place is easily determined during an inspection, and it’s important so your renovation costs don’t skyrocket once you get started. You need to know what you want to accomplish, however, and you need someone who can understand your goals and understand how to inspect the house to determine the feasibility and cost of them.
Once the right preparation has been done, the work of turning your fixer-upper into your dream home can be fun and rewarding. It’s more fun when someone else does it, because I assure you, swinging a sledge-hammer is only fun for about 20 minutes. It can also pay off - a lot. Not only do you end up with exactly what you want in a home, but chances are you’ll have built equity in it through your renovation. With a smart team backing you up, there’s no doubt you can save big and get your dream home with a fixer-upper.
If you’re interested in more details, I have a guide on this topic and how my Buy-Design-Build program can save you time, money and headache.