Q: My husband and I would like to buy a cheap house and spend our time and money to fix it, instead of buying a house for more money that doesn’t need work. The other houses in the neighborhoods we like are too expensive to us. But our friends feel that fixer-uppers aren’t worth the trouble. What’s the best way to go?
A: If you looking for a way to build some ‘sweat equity’ by buying a home that needs some improvement, that’s a great idea, as long as you keep in mind a few important factors:
1. If you are going to do this right, find a house that needs some work priced considerably below the comparable properties in that same neighborhood. Every neighborhood has a natural ceiling price. It doesn’t usually pay to take a run-down house in a run-down neighborhood and fix it up. Your real estate agent can do a Comparative Market Analysis to help you find out the average price in the areas you are interested.
2. Think “resale value.” Be aware that homes that are priced low but have undesirable floor plans, or are in undesirable locations, are going to be difficult to sell, even after getting an extreme makeover.
3. Steer clear of homes with structural defects, as these are the most costly, and most risky to repair. Make sure to do your due diligence before making a purchase. Get inspections. Have contractors come out and give you a bid on proposed improvements before you make an offer.
4. Don’t get stuck with a run down house you can’t afford to improve. Plan your financing needs for the purchase, as well as financing for improvements. Ideally, you should get a single loan to cover both costs. Loans like these are available with the FHA 203(k) programs. Check with your mortgage lender to see what is right for you.
Whatever you decide, don’t let the advice of well-meaning friends influence your decision. Consult professionals whom you trust for information, so you can make your decision based on what is right for you. Good Luck!
Stacey McCarthy is a real estate agent with the McCarthy Group of Keller Williams. Her Real NEastate column appears every Wednesday on NEastPhilly.com. See others here. Read other NEast Philly columns here.