Buying A Fixer-Upper House: Pros And Cons

It’s no secret that buying a house is expensive. However, if you’re willing to put in the work, you could purchase what’s known as a “fixer-upper” at below-market price. This type of home buying is a serious investment, though, so make sure you’re committed before going through with the purchase.

If you’re ready to look at fixer-upper houses, let’s walk through the buying process and uncover the pros and cons of a fixer-upper purchase.

What Is A Fixer-Upper?

A fixer-upper is a property available at a lower purchase price because it requires major maintenance work once you buy the house. While you can sometimes still live in a fixer-upper, you’ll need to spend a lot of time and money on structural and/or cosmetic improvements. You may benefit from a fixer-upper if you’d like more house for your money or you’re interested in flipping it to make a profit.

Pros And Cons Of Buying A Fixer-Upper

Here are some pros and cons of fixer-upper houses to keep in mind.

Pros Of Buying A Fixer-Upper

• A lower purchase price: Although you’ll need to spend more on renovating it, a fixer-upper house will come with a lower list price and down payment requirement (if not based on the percentage, then on the lower price).
• Less competition: Generally speaking, you’ll find less competition for fixer-upper homes, so you’re more likely to land the home you’d like at a great price.
• The chance to customize your home: Once you buy a fixer-upper house, you as the homeowner have the freedom to do whatever you please to it. Don’t like the kitchen? Remodel it. Want a deck? Build one. Want a bigger living room? Expand the space.
• Quality control: With renovations, you’re in charge. You can choose the materials, colors, contractors and everything else you’d like to build your dream home. 

Cons Of Buying A Fixer-Upper

• Expensive renovations: Depending on the renovations, you may end up barely breaking even – or spending more money on a fixer-upper.
• Difficult budgeting: While you can run the numbers and estimate how much your renovations will cost, it’s almost impossible to come to an accurate figure. Surprise costs will always pop up.
• Unexpected issues: Even if you get an inspection, unexpected issues will almost always arise – especially if the house is older.
• Long-term construction: Unless you live somewhere else while you’re renovating your fixer-upper, you’ll have to live in a construction zone for as long as it takes to complete your renovations.

Should You Buy A Fixer-Upper?

The right decision to buy a fixer-upper house depends on your unique situation. Consider your budget, needs, preferences and lifestyle before moving forward on a fixer-upper purchase.

A fixer-upper may be a good investment, but it can also be a huge money pit if you estimate renovations incorrectly, contract out for most projects and skip an inspection. 

To ensure a fixer-upper house is well worth the money, look at comparable homes (known as real estate comps) in the neighborhood. Then add your estimated cost of renovations to the purchase price. If you’re making money on the home, it’s probably a good investment.

Financial Considerations When Buying A Fixer Upper

Although buying a fixer-upper might seem like a fun project, it can be an ambitious risk without a lot of careful planning. There are many factors to take into account, but if successful, fixing up an old home can be a truly rewarding experience.

Planning Your Renovation Budget

In addition to the initial costs of home buying, fixer-uppers require a up-front renovation budget. Understanding how much you might need before you begin looking at homes is an important step. Searching for homes and falling in love with a property before you know if it’s affordable can sometimes result in a mistake purchase. Start by doing research into the most common renovations, how much you can reasonably budget for them, and how much of a financial buffer zone you have. Consider how much money you have on hand and how much disposable income can you expect to have over the next several years while renovation takes place.

Navigating Specialized Financing Options

Financing options do exist for renovating fixer-upper properties. If you’re buying an investment property that you won’t be living in, you can apply for the Fannie Mae Homestyle Renovation Mortgage or Freddie Mac’s CHOICERenovation^® Mortgage. Home equity loans and cash-out refinances are other options, though you’re likely to have limited home equity in a property you need to immediately renovate. And of course, personal loans can also be used for fixer-upper renovations.

If you are buying a fixer-upper to serve as your primary residence, you have more options. The Department of Housing and Urban Development recently updated their Standard 203(k) program for substantial home renovations to increase the timeline allowed for repairs.

Understanding Potential Resale Value

Many people buy fixer-uppers with the hopes of reselling them for a profit. This is not always the reality, however. Even if someone is able to save considerable cash when renovating, one also has to consider what any home seller has to think about when putting a house on the market. Location, comparable properties, and the current market matter just as much as the condition of a home. Another pitfall might be the renovations themselves. It might not be reasonable to invest in high-end kitchen renovations in a low-income neighborhood. On the reverse side, cutting corners, while saving your dollars initially, can backfire in a very expensive neighborhood.

The Importance Of Inspections And Estimates

Carrying out and understanding property inspections are critical to estimating the renovation costs of any given property.

Conducting thorough property inspections

Detailed and thorough home inspections are necessary to get a good idea of how much work and money you can expect. The list of things to consider in an inspection is extensive, and you want to have an expert looking at the home. When it comes to fixer-uppers, it might be best to get an inspection before you decide to buy, which can also give you an advantage if you do decide to make an offer. Work with your real estate agent to find the best home inspectors in the area, and don’t be afraid to be selective.

Obtaining Accurate Renovation Estimates

While some people are ready to tackle some of the renovations on their own, most will work with a variety of contractors to get things done. Your real estate agent and the internet can be valuable resources here, but you can also ask around the neighborhood and even get names from local home supply stores. You’ll want contractors who have experience with fixer-uppers and can provide work portfolios. Speak with multiple contractors and compare estimates. It’s also important that you get along well with them, as renovating such houses can be stressful at times.

Recognizing Possible Concealed Problems

As with any home purchase, there is always the possibility of unanticipated problems that were either missed during inspections or arise during renovations. Problems with HVAC systems, hidden water damage in basements, and well-concealed pest inspections are common oversights in inspection, and these things of course can arise during the renovations themselves, especially if you’re not living in the home while working on it. While there is no hard and fast rule for how much over your anticipated costs you should factor into your budget for surprises, it’s critical you keep a substantial amount on hand.

How To Find Fixer-Upper Houses For Sale

The easiest way to find fixer-upper homes is to work with a real estate agent. An agent or REALTOR^® has inner knowledge and connections that can help you find just what you’re looking for. In addition, they can access the multiple listing service (MLS) and find homes that aren’t publicly listed yet.

If you’re looking for the right fit, our friends at Rocket Homes^SM can match you with one of their Verified Partner Agents who can align with your goals as well as your budget to help you find the home you can make your own.

You also have the option to attend an auction and buy a foreclosed home as a fixer-upper. However, purchasing a foreclosure at an auction means you’ll buy the house as is, which can be financially risky.

If your heart is set on purchasing a fixer-upper, a Verified Approval¹ through Rocket Mortgage^® can help your offer stand out.

Buying A Fixer-Upper House In 6 Steps

If you’re thinking about buying a fixer-upper home, you might want to keep the following tips in mind.

1. Get A Home Inspection On The Fixer-Upper

A home inspection can cost you a couple of hundred dollars, but it should be a nonnegotiable if you want to buy a fixer-upper. A qualified home inspector will perform a thorough investigation of your prospective home and provide you with a report that outlines all the repairs it will need.

2. Estimate Renovation Costs

When you buy a fixer-upper house, you’ll want to make sure you can comfortably afford to turn it into the space you desire. Create a list of every project you intend to complete and price out the materials and labor costs (if it requires a contractor). Although you won’t be able to come to an exact cost for everything, you can figure out a ballpark estimate that allows you to budget accordingly and decide whether the investment is worthwhile.

3. Determine If A Permit Is Required

Some renovations may require permits. The location of your home will dictate which renovations you need permits for, but in most towns and cities, permits are necessary for:

• Structural work
• Window installation
• Room additions
• Sheds and garages
• Fences
• Plumbing and electrical work 

You can visit your municipal government office online or in-person to apply for a permit. Depending on the complexity of your project, you may need to provide detailed plans. 

4. Identify What You Can Renovate Yourself

There’s no denying that DIY renovations will save you a ton of cash. After all, contractors can be pricey – especially if you use them for every project. If you’re handy (or have some friends or family members who are), figure out which projects you can renovate yourself.

While you may not be able to tackle the electrical and plumbing, you may be able to paint and apply a backsplash without a contractor’s help.

5. Explore Fixer-Upper Loan Options

Many lenders offer loan options specifically for homes in need of renovation or home improvements. Some financing options can help you pay for the cost of your home as well as the renovations. With a Federal Housing Administration (FHA) 203(k) rehabilitation loan or Fannie Mae HomeStyle Renovation Mortgage, you can purchase your home and put a reserve in escrow to fund renovations.

It should be noted that at this time, Rocket Mortgage doesn’t offer these options. 

6. Make A Smart Offer To Not Overpay For A Fixer-Upper

If at all possible, you should avoid overpaying for a fixer-upper. The whole point of buying a house that needs work is getting a good deal on it. Make an offer that strikes a balance between a good deal and the cost of necessary repairs.

With any offer, you should include contingencies, which are exceptions that allow you to back out of a purchase if something comes up. A couple of common contingencies are inspection and appraisal contingencies. If an inspection reveals a major problem or the home appraises for lower than you offered, you can back out.

You should also be able to negotiate a selling price. If the home you’re interested in has several flaws, you may have more bargaining leverage. Work with an agent to make a smart offer and handle any counteroffers. Don’t be afraid to walk away if the seller isn’t willing to negotiate.

Buying A Fixer-Upper FAQs

Here are a couple of additional questions that often arise when considering fixer-upper homes.

Can you buy a fixer-upper house with no money?

The only loans offering no money down are VA loans and USDA loans, both of which require the home buyer to use the property as their primary residence. It’s possible to buy a fixer-upper with no money down, but you must be prepared to live in it yourself for some time before attempting to sell it. 

Is a fixer-upper a good investment?

The simple answer is, it’s complicated! Whether it’s a good investment ultimately depends on the financial savviness of the individual buying and renovating it. If you carefully consider the costs of what has to be done to get the house in working order and remember to factor in a hefty financial buffer zone for such costs, you’re off to a good start. Thinking about the marketability of the neighborhood and type of home is also important. While fixer-uppers can be an excellent investment, it’s important to realize that a lot can go wrong.

The Bottom Line: Buying A Fixer-Upper Is Worth The Elbow Grease

At first glance, a fixer-upper may seem like a great deal you can’t pass up. Once you realize how much you need to spend on repairs and renovations, however, you may have a different opinion. Before you make an offer on a fixer-upper, do the heavy lifting and be sure it’s a worthwhile investment.

If you’ve done your homework and you’re ready to finance a new home, you can get started today. You can also give us a call at (833) 326-6018.

1 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.