How to Buy a "Fixer-Upper"

How to Buy a "Fixer-Upper"

The Chicago market is full of all sorts of properties, from gleaming, modern condos to old, historic treasures. It’s home to beautiful houses primed and ready for new owners – and also its fair share of diamonds in the rough.

For many homebuyers, there’s something romantic about the idea of buying and living in a “fixer-upper.” You saw something that no one else saw, and thanks to your time, efforts, and vision, you’ve transformed a dingy property into your dream home.

At the same time, many homebuyers look at a fixer-upper as a steal, an opportunity to score a property for “for as little as 60% to 80% of the original asking price,” according to Realtor.com.

But don’t let your rose-tinted visions of the future, or the dollar signs in your eyes, cloud your judgement! Like finding a short sale or a foreclosure, taking on a house in need of more-than-a-little TLC can be a great investment – but it’s also a high-risk prospect that will come with its own unique set of challenges and obstacles. Keep in mind, as well, that if the property is truly a bargain, you'll be competing against other eager fixer-uppers and professional home contractors. 

So, before you seriously start to pursue a fixer-upper, ask yourself:

1.) Can I Handle the Costs?

The asking price may be low - and your real estate team may be able to negotiate it even lower, once you know the full extent of the necessary repairs – but a fixer upper, by definition, means a serious investment in time, labor, and supplies, at the very least.

It’s important to think about the full extent of the costs that may accompany the new property, which, on top of the down payment and closing costs, may include:

  • Assessments (for a condo) and inspections
  • The actual price of repairs and renovations (supplies, contractors’ fees, etc.)
  • Permit costs
  • The cost of  living in a hotel or other accommodations for long periods while you perform the rehab
  • Any home equity or improvement loans you take out or wrap into your mortgage, such as a Section 203(k) program
  • The credit debt you may incur to tackle repairs out of pocket

And even if you successfully roll the full estimated costs of repairs into your fair purchase offer or have inspections covered by contingencies, Houselogic still encourages homebuyers to plan for an additional “10% to 20%” above your budget, in order “to cover unforeseen problems that often arise with a fixer-upper house.”

2.) Is the Fixer-Upper Actually Fixable?

During the inspections and walkthroughs you stipulate in your contingencies – which should include looks at the plumbing and sewage, HVAC, and electrical systems; inspections for mold, lead paint, asbestos, or pests; and deep looks at the foundation and structural integrity of the home itself – ask yourself if you can really live with the results.

Whether you plan on tackling updates and repairs as DIY-er or by hiring contractors, it’s important to realize your limits and be sensible about the scope of what you can realistically undertake. 

If the work that needs to be done to the house is largely cosmetic – that is, it mostly just needs fresh paint, refinished floors, or some updates to modernize the kitchen or bath – that’s one thing. On the other hand, a house that needs major structural repairs, a plumbing overhaul, a new roof, or a totally new HVAC system is a different beast entirely.

Be brutally honest with yourself and your real estate team – do you have the time, budget, flexibility, and willpower to deal with all of this labor? If not, a true fixer-upper may actually not be what you’re looking for.

Whatever your tastes, Real Group has a listing sure to satisfy. Whether you’re buying or selling in the Chicagoland area, drop us a line today to get the conversation started!

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