Is Buying A "Fixer-Upper" The Right Choice?
One thing that never changes in life is you have to make decisions. In fact, you make dozens and dozens of decisions every single day of your life. Some of them are small in nature and require hardly any thought at all. Others though are quite monumental and require great consideration and reflection before you decide to, “pull the trigger”.
One of the most important decisions any of us will ever make in our adult lives revolves around buying a home. Buying a home is easily one of the largest investments most of us will ever make in our lives. As if that weren’t enough to stress you out, what type of home are you going to buy? Are you going to look for a deal and buy a home that needs some work? Are you going to buy a brand new home that is move-in ready? These are very important questions to ask. In the low inventory, high priced Silicon Valey this question comes even more into play.
While buying a fixer-upper may be attractive because it may afford you to buy more for your dollar, or get into the market sooner, rather than later, there are some specific key considerations you want to make before deciding whether or not a fixer-upper is right for you. Today I want to share some thoughts on what makes a fixer-upper a great choice for you and when you may want to consider skipping the fixer-upper and waiting for a move-in ready home.
When Buying a Fixer-Upper Might Be A Great Idea For You
When You Want To Build Your Dream Home
In all the years I’ve been representing home buyers in the Silicon Valley, the number one reason my clients want to buy a fixer-upper is that it gives them a full
opportunity to make the home their own. The house is going to need work, so why not go crazy and work out every detail of the work to be exactly how you want
it? Fixer-uppers give you that freedom. One way to look at this is getting the exact dream home you want, yet without having to pay the extra expenses of
something like building an entire custom home.
Even with all these freedoms, it’s important to take time before you actually complete your purchase transaction to make sure that the changes you want to make are actually legal in the city you are buying in. For instance, there may be some structural changes to the fixer-upper that the city won’t allow. Or, after consulting a contractor or architect, you may find out that even if something is technically legal, with the particular home you are looking to buy, it just isn’t structurally feasible. For these reasons, it’s important that you do your homework up front.
When You Have Extra Money Saved For Renovations And Construction
Another all important factor to consider when buying a fixer-upper is whether or not you will have enough money left over after the purchase to perform the renovations or construction you are thinking of. If it’s vitally important that you perform the renovations and construction immediately after you close on your new home, but you don’t have enough funds to cover the costs of the work, a fixer-upper may not be right for you.
Perhaps though you aren’t as insistent on getting all the renovations done right away and can sit back and wait to bank some cash in order to get the work done. In this case, as long as you have enough funds to cover the unexpected, such as mold inside the walls, leaky water pipes that need to be replaced, faulty electricity, etc., a fixer-upper could be the perfect thing for you.
If you are going to finance the renovation and construction projects, obtaining a loan can also be an issue. There are limits to how much you can borrow. Also, even within those limits, you can only borrow enough to finance either up to 110% of the home’s projected value after rehabilitation, or the value of the property before rehabilitation plus the cost of rehabilitation. The maximum loan amount is the lesser of these two options.
When You Can Get A Great Deal
Obviously, the number one best time to purchase a fixer-upper is when you can get a great deal on it. Fixer-uppers can list for 10-12% below market value. With the high prices of Silicon Valley Real Estate, that can be big savings. Think of every dollar of those savings as a dollar you can use for your renovation and construction projects.
Another money-saving feature of buying a fixer-upper is that property taxes are based on your home’s sale price. So even if your home increases in value drastically after your improvements, you are still only paying property tax based on the original sale price of the home.
When a Finished Home Might Be a Good Idea
When You Want To Move In Right Away
Buying a move-in ready home can be a huge benefit for you. You won’t have to wait weeks or months until the house is in a state to be occupied — or live in an unfinished home under construction. Also, you don’t have to deal with the stress of rehabbing a fixer-upper. (It’s a lot of work.) Instead, you can spend your first days as a homeowner simply enjoying your new digs.
When You Are Tight On Funds
When you buy a fixer-upper, you can encounter unforeseen expenses during the renovation process that can force you to stretch your budget. This was my main reason for buying a move-in ready home two years ago rather than a fixer-upper. Also, I liked knowing that my house — which had been recently remodeled top to bottom — was already in good shape. I haven’t had to call the handyman once!
When You Aren’t “Handy” And Don't Have An Eye For Home Design
Buying a fixer-upper is like building a house from the ground up — you need to make a lot of decisions about the layout and building materials. This can be difficult if you are indecisive by nature, have no architectural or design background, or have a different aesthetic from your spouse. But when you buy a move-in ready house, everything from the kitchen backsplash to the bathroom tile has been decided for you.
At The End Of The Day
Buying a home is complicated and stressful enough, so unless you’re 110% committed to investing the time, money, and elbow grease into repairing a house, you may want to buy move-in ready. If you’re just starting out and can’t afford to pour unexpected costs into a big project, buying a home as-is can be an easier introduction to homeownership. On the flip side, DIY-ing your dream home comes at major costs but could be a good move if you have the resources and know-how to do so.