How much will your Fixer-Upper really cost?

Buying a fixer-upper can be a good deal, or it can become a dealbreaker.

1.  Be honest with yourself when assessing your renovation skill level

These days, there are tons of TV shows, that make remodeling look like a walk in the park. In reality, attempting to do a big remodeling job on your own can lead to less-than-professional results, and take longer than you estimated. These two factors – time and quality of work, will definitely affect the value of your fixer-upper house.

• Do you know how to do this? Some remodeling projects, like painting, or some demolition are fairly easy. Leave the electrical work and other bigger projects that can be potentially dangerous, to a professional .

• Do you have the time and drive to do it? Are you in a position to take time off work or change your schedule to work on your fixer-upper? Are you willing to live in a work zone for weeks, maybe months while you do your weekend warrior projects around the house?

2.  Know what the cost of the repairs and projects you want will be BEFORE making an offer.

• While you have access to the house to do a home inspection, get your plumber, electrician, general contractor in and have them assess what everything will cost. Make sure to get it in writing.

• If you are planning on doing the work yourself, make a list of all the supplies you’ll need and get a total cost.

• Always add on an additional 10% to 20% for  unforeseen problems that may arise with a fixer-upper house.

3.  Know your permit costs.

• Make sure to check with your local city officials to see if the work you will be doing requires a permit. If you do the work without a permit, you may save money, but it can cause problems once you resell your home.

• Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.

• Allot for time lost dealing with permits into your plans.

4.  Be  aware of structural work.
If your fixer-upper home needs major structural work, get a structural engineer for an additional cost to inspect the home at the same time as your general home inspection.

Don’t buy a house with major structural damage unless:

• You’re getting it at an incredible discount

• You are absolutely sure that you know the entire structural issue and know how to remedy it.

• You have a written estimate within your budget that is binding, meaning you can hold your contractor to it.

5. Make sure you have your financing in order.
Do you have enough money for the downpayment, closing costs, and repairs without draining your savings?

If you plan on getting a second loan for the repairs:

• Make sure to be pre-approved for both loans before you make an offer.

• Make the deal contingent on getting both the initial home loan and the second repair loan, that way, you won’t get stuck with a house that you cannot afford to repair.
• Look into the Federal Housing Administration’s Section 203(k) program, it is designed to help home owners purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans. A streamlined 203(k) program provides an additional amount for rehabilitation, up to $35,000, on top of an existing mortgage. It’s a simpler process than obtaining the standard 203(k).

6.  Assess the potential value and base you offer on that.
Have your REALTOR® give you a current market analysis to see what updated homes in the area are valued at. Take the estimated cost that you now have for the repairs you are doing and subtract it from the assessed value.

For example: The  fixer-upper you are looking at has a 1950s kitchen, ugly wallpaper, and no insulation in the walls, attic or crawlspace.

Your comparison house, in the same subdivision, sold last month for $150,000. That house had an updated kitchen, was freshly painted, and has a brand new windows and doors and is well insulated.

The cost to remodel the kitchen, remove the wallpaper, and get the house energy efficient is $25,000. Your offer should be around $125,000.

Good luck, and if you need the help of a REALTOR®, you know who to call.