With the rise of HGTV hits Property Brothers and Fixer Upper and the competitive Denver real estate market, many potential buyers are attracted to the idea of buying a fixer. While the benefits are clear, the reality of buying a fixer is often over-glamorized or underplayed. Here are the pros and cons of buying a fixer upper.
1. Build Equity.
Building equity will build your net worth and ensure your financial stability. You can build immediate equity and save money by doing some DIY improvements. Easy DIY tasks include painting, landscaping, and updating fixtures. For larger, more complicated projects, hire a licensed contractor.
Also, during the home buying process, be sure to hire a good inspector. Your home inspector is there to help you understand your potential home, and you will want to know everything that is wrong with the home, not up to code, or structurally sound.
2. Less susceptible to real estate market fluctuations.
Since you can often buy a fixer below market value, you can build value into your home than rely on the real estate market. Move-in ready homes are often bought at or above market value, therefore their value is more dependent on the real estate market.
3. Listing Price Bargains.
Homes in the Denver area have been rising at records rates. With a lower list price, you can have a lower down payment or a lower principal balance on your mortgage, giving you extra cash for improvements. Also, a lower price per square foot means that you can afford a larger home in your budget.
1. Unexpected Issues.
Renovations add up quickly. Certain unexpected issues – mold, asbestos, foundation issues – can be costly and throw your renovation project over your budget. After your home inspection, visit a site like Homewyse to get an average cost of particular improvements for the Denver area.
2. Difficulty Getting a Mortgage Loan.
The condition of a fixer upper may be so poor that a bank may decide that the home is “too far gone”. The appraisal may come in lower than expected or the mortgage process may reveal additional liens or code violations. Banks may ask you to put more money down on the home or reject the mortgage application completely.
3. Living in a Construction Zone.
If you don’t have another place to live while your home is under construction, you may have to live in a construction zone for many months. This is particularly difficult with young children. Be sure to find a reputable contractor – the Denver area has many. Ones to consider are: Peak Construction Company, LR Contracting, or Formula Roofing and Remodeling.
4. Relationship Stress.
Buying a home is stressful. Buying a home, then embarking on a major renovation can be twice as stressful. Making decisions that impact your financial standing immediately and in the future can put a great deal of strain on your relationship with your partner. Be sure you prepare for and can handle additional stress before beginning the renovation project.
At the end of the day, there are many things to consider when considering a fixer upper. It is certainly not as glamorous as the shows on HGTV will suggest, but the potentially lucrative financial incentives of buying a fixer upper – particularly in the Denver area – are very motivating.