Is buying a fixer-upper a good investment?

Question

I'm a single guy looking to buy my first home (first time buyer).

I'm already preapproved for 115 thousand from a mortage lender. I was wondering if buying a home that needs fixing up would be a way I should start out. What does a fixer-upper usually go for? Is buying a home now a good 10 year investment to increase my pocketbook? Will the value of a 50 thousand dollar home increase to as much as 100 thousand over the next five years? I live in Colorado Springs, Co.

Answer 1

You need to sit down with a buyer’s agent who understands your market. They can show you homes that need work and explain to you how changes in those homes could affect your value. If you don’t do something foolish – like refinance your mortgage to take out equity – you’ll usually make money over the long-term with a house.  And after the sale, your buyer’s agent can be a great source of info as to what sort of improvements would benefit your house (also keeping you from over-improving for your price point) and how your investments affect your value.

Normal appreciation on a home is about 2% per year so no you shouldn’t expect 50% appreciation in five years. Those kind of unrealistic numbers helped created the current housing issues.

A home that needs work can be a good idea if you have lots of time to work on it and can do the work yourself. Keep in mind your experience level when deciding how much work you’ll take on.  

From personal experience, I can tell you it’s really easy to get caught up thinking you can accomplish a lot after work and on weekends. Then reality sets in and you realize that everything takes longer than you thought, and that if you still have a life to live outside of working on your house, you can’t complete projects as fast as you’d like. And of course it always costs more than you anticipated.

Answer 2

My husband and I purchased our first house in 2005 as a fixer-upper. We bought it for $90,000, put $4,000 into it and then sold it for $125,000 one year later. We did all of the labor ourselves, and paid only material, though. It really helps to be handy because labor is very very costly! I am not familiar with the market in CO Springs, but I think buying a fixer upper is a decent idea. All we have ever bought was fixer uppers, but I love to design and my husband is really handy so it fits us. It mostly depends on if you are up for the task.

Answer 3

I'm not sure about your real estate market, but I can tell you one thing for sure:

If you're a handy guy (meaning you can do drywall, can teach yourself plumbing, electrical, insulation, how to refinish hardwood... and many other things), buying a fixer upper is great.

If you feel daunted preparing a simple project around the house, do not buy a fixer upper.

Those types of houses are great investments if you can buy only materials and do all the labor yourself. If you have to hire contractors for everything - run awayyyy!

There are a couple of things you need to look at:

Get a structural analysis to make sure the foundations and supports are sound (huge money pit if you run into that kind of problem after closing), get a home inspection and termite inspection to make sure your fixer upper is fixable and not rotten.

You should also keep in mind that when buying a fixer upper, you should put aside at least $20 to $50K for renovations. Once you buy a home, you'll soon find out how pricey materials and tools can be.

We purchased our home in 2006 and have since renovated the entire inside. The home wasn't a true fixer upper, but it needed a lot of work. We taught ourselves how to do plumbing, electrical, hardwood floors, wall removal, tiling... you name it, we did it. We only hired one service: the installation of our central AC system.

At this point, we're $70K into the renovations with the outside still to go. We're in NJ, so everything is a bit more, but you get the idea.

If you can afford a house, right now is a truly great time to buy. The real estate market should start recovering soon and if you make a good choice in your house and put some elbow grease into it, it's sure to turn a profit a couple of years from now.

Plus - being a home owner is Oh-so-very-attractive to the female species. Shows you to be a responsible guy who's looking to settle down.

One thing that might be worth looking into - sign up with one of the services that list foreclosures in your area. If you're somewhat handy, you may be able to find yourself a foreclosed home for possibly half of what a regular listing may cost you. These services charge for signing up, but since you're in the market to buy, it may truly be worth it.

Answer 4

As an "old"Realtor...I can advice you on a few things.

#1 Rule...   3 most important things when buying a house!

Location , Location , Location...

Buy the worst house in the best neighborhood you can afford!

Best to have it livable though...

#2 Rule ...Expect that repairs are going to be at least 3 X more then you thought they would be?

( always get a home inspection...it's worth ever penny)

Do just what is necessary the first year.....It takes at least that long for all the "bugs"( problems ) to work themselves out.

In other words don't put 10 Gs in a new kitchen...only to find out a week later the plumbing is bad!

Buy a property that you personally like...not just an investment.

Real estate speculation...is a local thing. Do a lot of homework about you local market...past and present.Talk to Realtor's , look at your local MLS listings, they are on line.

In most areas, this is a buyers market....so you have the edge.

Being preapproved is a nice plus in your favor..

I've put some good info..below for you to get started.

Answer 5

If you're really handy with tools, carpentry, plumbing, and that sort of thing you can buy a fixer upper and save money all around.  You would save money on repairs while bringing equity into your home.  When the market recovers, you will have added value to your home and made a solid investment towards your next home should you decide to sell.  My answer to you is YES, if you are sure you could afford the materials and do the work.

Answer 6

If you are able to do a lot of the work yourself  ,and you really know what you're doing,it should be ok. Who knows what the housing market will do in 5 years.

Answer 7

Many "fixer-uppers" are more like "should-a-knocker-overs" but guys like you come along and try to breath new life into it.. holding things together with a bit of bubblegum here and there because you're stretched to the limit.... well one day, the bubblegum will crack.

The only reason these homes increase in value is because the cost of building new and the cost of land has increased due to inflation... You might take a look at the direction of property values in your area... are they reducing???

So, if you buy a so called fixer-upper make sure it isn't you that has to pay to actually fix it up...... or invest in something else.... buy shares or sommat on a margin loan instead.... it's still gambling with other people's money either way you do it.

Edit: As for the dyi alternative... let's say you are an expert mechanic and can earn $50 an hour... why wouldn't you engage a carpenter and pay him $50 an hour to do your house while you earn $50 fixing motors.... then at least the job on your house will have a better chance of being done expertly. Horses for courses.