Deal Or Dud: How To Know If A Fixer Upper Is Worth It

Real Estate Articles

One of the simplest ways to make a sound real estate investment is to buy a home that needs work, only to fix it up and sell it for more than you paid for it. However, not every house is a great prospect for making your money back. How can you know for sure if your fixer upper real estate property will end up turning a profit? Here are some basic guidelines that can help you in your search for the best property investment.

1. Neighborhood

When it comes to fixer-upper homes, it's best to choose houses that are in desirable or up-and-coming neighborhoods where prices are trending upwards. Up-and-coming areas already have property values that are increasing, so it's easier to ensure the cost of your renovation will be compensated by future buyers. 

How can you identify an up-and-coming neighborhood? Check for:

1. descending time on the market. Profitable neighborhoods become increasingly more competitive. Check how long it takes currently listed properties to sell. If the days on the market have been steadily going down over the past several months, choosing a fixer upper in this area is wise.
2. new small businesses. Small businesses, like coffee shops, bookstores, and small specialty boutiques, do not do well in neighborhoods with no upward-trending economic fluidity. New businesses in previously run-down areas of town are a sign that the neighborhood itself is on the cusp of sky-rocketing.
3. young professionals and families. Young professionals or young couples with small children can't often afford to live in already established, move-in ready homes in pricier areas of town. They settle for "second best" by purchasing in neighborhoods that need a little TLC. As they become more financially stable, they renovate or buy within the same neighborhood, driving the property values and general local economy up. 

In up-and-coming neighborhoods, you can still find properties that need renovation. Established, expensive, and historical neighborhoods may also have occasional diamonds in the rough that need to be brought up to the standard of the other homes on the block. 

2. The Right Work

Many buyers look at a home and think that nearly any problem can be fixed. But the best fixer-uppers have the right problems. You might need to spend extra to fix up kitchens and bathrooms and flooring. But these are worthwhile updates that future buyers are looking for. 

More expensive, but unseen, work is best left for those with deep pockets, especially if the cost of the property is high compared to your renovation budget. For example, foundation work is very expensive and can eat up thousands of dollars. If a house has structural issues, it's best not to gamble on this wild-card expense. 

3. Comparable House Prices

Take some time to tour some move-in-ready properties when looking for the right fixer upper in the neighborhood. You'll see what finishes and work went into these homes to justify the asking the price. It can help you forecast how much you want to spend on your fixer upper and how much you can spend on renovations before you break even with the market comparisons. 

This way, you don't make the mistake of buying too high or spending too much on renovation to recoup your investment. To give yourself plenty of buffer, don't be afraid to look at homes that are priced very low -- sometimes, they have sound structure, but simply need so much work that most buyers are not willing to offer. 

There are plenty of factors that go in to making a profit on fixing up a property. For more information about finding the perfect fixer-upper, contact a local real estate agency in your area.

6 April 2017