Should you buy a fixer-upper?
Fixer-upper (noun). A home you purchase at a reasonable price, but one that requires an unreasonable amount of money in repairs and renovations.
Okay, so I made up that definition, and it’s not always true. Buying fixer-uppers can get you more house than you would normally be able to afford at a reasonable price. They can be pleasantly inexpensive. But they can also be money pits, masquerading behind a façade of charming woodwork and arched doorways.
As tempting as the purchase price is for houses that need a little TLC, you must assess whether a fixer-upper is right for you. To do that, you need an appraisal. And I’m not just talking about the house.
An Honest Appraisal of Yourself
I believe even a carefully selected fixer-upper is really only a bargain if you can do the labor yourself. Even though we come from a long line of blue-collar workers, we have a lot to learn. Still, we have people to ask. Between our two families, we have two HVAC technicians, a plumber, an electrician, two ex-carpenters, a concrete worker, and two RNs (just in case the renovations don’t go smoothly).
It’s more than knowing how to do repairs, though. Even if you can do most of the labor yourself, do you want to? For instance, my husband loves doing electrical work, but doesn’t enjoy carpentry. That means our windows remained untrimmed for long time, but I’m not shocked that we have a great fuse box.
Then there’s living in the middle of endless projects. Since we renovate after our day jobs, sometimes we live in the middle of projects for a long time. When we refinished our wood floors on the main level, I was this close to going crazy. There was dust everywhere, for too long.
And are you equipped with the necessary tools? Even though we have the main tools like hammers and drills, we also share the really expensive or less commonly used tools between family members. Tools are expensive. You may want to borrow or rent tools that you won’t use as often.
The Other Honest Appraisal
As much as possible, you need to know everything about the house. A home appraisal and a thorough home inspection should tell you what you need to know. What’s it worth? If it’s an old house (and most fixer uppers are), how is the foundation? How old is the plumbing and wiring? Is there evidence of mold or water damage? Does it need a new roof?
Once you know what it needs, you need to ask whether you can afford to fix these things. Unless the house is dirt cheap, or you have access to inexpensive materials, you may need to find another house. Issues like mold or a foundation in disrepair are expensive to fix, so you may or may not get your money back in home equity.
A Tale of Two Houses
We’ve owned two homes. And while both needed a lot of work, they were completely different.
So what was the difference? The first house sat on the edge of a town with notoriously low prices for real estate. It was a mediocre house in a mediocre neighborhood. Because of that, we needed to buy the house at a price lower than the surrounding houses. Which brings me to rule #1…
Rule #1: Buy a fixer-upper at a cost (way) below the rest of the houses in a good neighborhood. By following this rule, your improvements will bring your house up to (or slightly exceed) the value of the surrounding properties. You won’t recoup your costs if your renovations result in “too much house” for the neighborhood.
Rule #2. Find a fixer-upper with quality construction. That first house was cheap, costing less than our combined annual income at the time. But everything about it was cheap, including the materials used in its construction. And that led to a rodent infestation, among other things. (I think our record was catching 14 mice in a 24-hour period.)
On the other hand, our second house has “good bones.” Maybe it needs lots of work, but at least the extra work will be built on a good foundation. Ah, but “lots of work” means mostly major, expensive projects.
Rule #3. Pick a fixer-upper with cosmetic upgrades instead of major, expensive projects. Well, of course! We didn’t put lots of money into our first house. Instead of fixing the foundation or updating the kitchen, we did inexpensive things like painting, pulling out old, overgrown bushes, and replacing the carpet.
And the new house? In the five years since we moved in, here are the projects we’ve completed: refinished all the wood floors (all 1,800 square feet of them); replaced the roof and some windows; rewired the house; renovated the bathroom; fixed the barn roof; replaced the leaking toilets and one of the rotten bathroom floors.
That doesn’t even include the projects we had to hire out like replacing part of the barn foundation or putting in a new septic system.
It also doesn’t include the projects yet to come. Despite the copious amounts of cash we’ve poured into this place, it still looks like a fixer-upper on the outside. We’re used to the squirrel-gnawed siding and the peeling windows, but we recently got a glimpse of how it looks to others.
This summer, we hosted a shrimp boil on the front lawn with lots of people, including a couple dozen kids. As I walked around the tables handing out cocktail sauce, one 6-year-old said, “Hey, who lives here?”
“I do,” I replied.
“Well, you need to paint this house!”
No, buddy, what we really need is new siding.
Counting the siding, new windows, and a few other things that we really need to do, I estimate that we have another $25,000 of updates to go, before we start the bathroom and kitchen renovations…and that doesn’t count the $30,000 we’ve already spent. According to the last appraisal, the house is worth less now than when we bought it.
Ouch. Next time I’ll be following my own advice AND applying this formula: Price of house plus cost of repairs equals the average home price in the neighborhood.
So before you fall in love with a fixer-upper, ask yourself if this is a decision you can live with in.
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There are 84 comments to "Should you buy a fixer-upper?".
Holy moly, how we have learned this lesson the hard way. The hard thing is that it is very difficult to view the purchase of your home rationally, like a business transaction, which it is. We finally sold our money pit over the summer, but it was hard- so much of your heart and soul goes into a fixer upper that it is hard to let go. We felt like it was the right choice for our family and bought an affordable new place with adequate space in a safe neighborhood. But, I still miss my old money pit.
You’re right: the emotional component of the entire transaction can be a trap. We easily get in over our heads when we talk ourselves into more than we can do. And after the fact it’s hard to let go of something that has so much of ourselves in it.
And along the way we have to fight our emotional desire to over-invest or to over-personalize.
Our first home was a fixer upper. We stank at it. 🙂 Rather than put in the hours into a house, we put the hours into our jobs and with the extra money we bought houses requiring no fixing up. (That was the theory, anyway! 🙂 )
Yes! We did the emotional thing. Not gonna lie. We were head-over-heels in love with our property and didn’t really consider the costs. And it hasn’t gotten any better, because, like you, we are pouring a lot of ourselves into it. But we still love it.
Houses are not investments. Though I have done well in my home purchasing over the last twenty five years, I have never confused my home with my investment portfolio. I don’t count my home’s equity as part of my net worth.
I think we may be talking semantics, but houses are an investment in the sense that there’s no guarantee that it turns out to be a good one. I think people assume that buying a house is a relatively safe investment, and I whole-heartedly disagree. Imagine taking that $300,000 and buying a bunch of high dividend paying stocks and bonds, maybe some here in the US and some abroad. There’s no guarantee that the home would appreciate faster than the combined appreciation and income of those stocks and bonds. Any “tax breaks” you get as a homeowner are simply already priced into the purchase price of the home.
As for not counting you home’s equity in your net worth: I think you should, provided you count your remaining mortgage as a liability. It’s an asset just like any other. However, I think you should be conservative in your estimate, as it’s not quite as liquid as holding a bunch of marketable securities.
So if I own my Southern California home free and clear you don’t think I should include any equity in my net worth calculation?
You don’t have to consider your home an investment, just like you don’t have to consider your car, your furniture, or your jewelry as investments. However, to meet the definition of networth you are supposed to assign value to everything you own and all debts you have. Just because you use something or don’t sell it doesn’t mean it has no worth. That said, how your personally track and consider items for your finances is for you to decide. Just like I would lump all my home furnishings into a single, lowball number for networth purposes, someone else could break out the numbers in a detailed list. To many, given that from a worth perspective, a home is likely to be your largest and most expensive salable item and/or carry your greatest debt, not including it in your networth calculation indicates what you are doing is not looking at networth, but rather looking at some other form of tracking your finances.
Ooooooooh, I don’t know. Fixer-uppers?
The house we live in – built by my grandfather – is huge. So the taxes and maintenance costs are huge. Heating bills are huge. Roof repairs are expensive because, well, we have a lot of roof! Not to mention cleaning takes forever – with stairs, basements, attic, garden and so on.
My point is, buying a big house and fixing it up is NOT A ONE-TIME THING. After the initial costs of fixing, be prepared for high costs of “running” the house.
What happens in a couple of years when you have to repaint or when you have to change the roof tiles or redo the wooden floors? Big houses have very high costs associated with them.
If I had to buy a fixer-upper, I’d make sure to NOT choose a large one.
Great point. Every house is a fixer-upper. My preferred strategy is buying a house with a good location, a good floor plan, and a good foundation. Currently I live in a house that met all three criteria but had lots of deferred maintenance. It showed horribly which was good for me. Even in one of LA’s hottest home-buying markets, I got it for a good price. Using my $50,000 reno budget, within two months I had replaced the roof, replaced the original plumbing with copper, rewired the entire house, replaced all of the windows with double paned ones, replaced the original bathroom, repainted inside and out, insulated, updated the lighting, replaced the garage door and fixed the fireplace. Two years later I had saved another $10,000 to landscape a yard that had never been fixed after the Northridge earthquake. In another three years I had saved enough to replace one of the grossest kitchens in history with my dream kitchen. All together I invested $85,000 and today my house, even in today’s market appraises $200,000 over what I paid ten years ago.
I chose not to do a bit of the work myself despite being a championship painter and experienced DIY’er. I paid professionals so that I have permits for everything — one reason my house appraises so well. This is the second time I have used this strategy; the first time I sold the house for enough to finance my $50,000 fixer fund and my downpayment. It took five years but for the past five years I have enjoyed a house completely suited to my tastes.
I only have one additional rule of thumb for house purchasing: never have a house payment (including taxes and insurance) that is more than you could rent the property for.
Wow, amazing story! How did you choose the order of your projects? I take it windows, wiring, and plumbing would come before painting, but did you decide to do smaller projects that you could afford first, or ones that would increase the value of the home more quickly? Also, did you have a general contractor who made suggestions on your timeline, or did you subcontract everything out yourself?
I know a couple who bought a major fixer upper for dirt cheap. At the time it was all they could afford. They bought in a city neighborhood that isn’t the greatest (an understatement really) in terms of school district and crime.
Since they had no money, they decided to do the work themselves gradually. I haven’t been there for a while, but I remember going a few years after they had moved in. Even then there was still exposed beams (and not of the architectural kind), holes in the ceilings, and nails sticking out of the floor. I can’t believe they lived that way for so long. They completely finished the bedroom upstairs, and that became their sanctuary.
They also were purists and would only buy the best of the best. This also slowed it all down. Plus because they lacked funds, we would regularly get mass e-mails asking to spend our Saturday painting or helping them put up cabinets. We never said yes.
At the end of it all, they will still have a great home in a questionable neighborhood. The area hasn’t improved. If they sell, they will probably still sell at a loss. Was it worth years of stress?
We are currently dealing with a dumpster in our driveway that has been there for over six months. At least the port-a-potty is gone. We also had a torn up back yard for months and an unfinished addition on the back. Even if you don’t do the work yourself, you have to deal with delays. Ours was a silly tile snafu with a terrible tile company. We waiting 7 weeks for tile. Once it arrived, we realized they had ordered the wrong tile. Oy! I can’t imagine if this was something essential like a kitchen. I would have gone bonkers.
Turning your house into a construction zone is certainly not for the faint-hearted.
This brings up another good point: don’t buy a fixer upper unless you have a cash reserve to fund at least some of the improvements. Whenever you open walls, you open yourself to a host of unexpected structural, electrical or plumbing problems, many of which take professional help to solve correctly.
I agree that most of the savings come from doing the work yourself, so it depends if it’s something you enjoy.
If not, you’d probably be better getting a weekend job for a year or two (since that’s how long a true fixer-upper realistically takes) and spending all that extra cash on a finished house.
That’s exactly right. You have to know yourself. My husband and I don’t mind doing our own repairs, I think you could say we even enjoy working together on some of them. BUT, My husband and I DETEST yardwork so much that we now factor in the cost of paying someone else to do it for us to the price of any home we’re considering buying. It’s not that we can’t mow our lawn or rake our own leaves, we just really don’t want to.
I think a lot of it comes down to being honest with yourself, like you say. If there are not major repairs needed, but ones that you can tackle (and do yourself) then it very well may be worth it. Plus you can have the satisfaction of getting it all done and having something you like in the end.
I agree, you’ve got to be honest with yourself. In my case, the house my wife and I bought needed work, but I already do blue collar fix-it stuff as my day job so gutting the bathroom and fixing the furnace and the roofing, putting in a fireplace…I knew I could do it all. And I have! But if you’re not sure you can do it yourself, see what contractor costs are, and you’ll probably find that a fixer upper is a bad plan.
Your wife is a lucky lady!
Yeag
We had mostly good results with our fixer, but we are handy people and my husband had construction experience. We bought small, old and well-built but not updated since the 40s.
Though most of it went well, I strongly recommend not buying a fixer with only 1 bathroom! Living for 3 weeks without a shower or toilet, in a hotel and then on friends’ couches when the project ran long, was the worst stress we faced from the job.
Unless you happen to have unusually good repair skills, I think buying a fixer-upper is almost always a bad idea. The hidden costs tend to be very high. Having construction experience and contacts might be enough to tip the decision though.
Do try to find out if there are flippers in the area that have passed on the house. If there are, that may mean you’re underestimating the work or overestimating the equity gain.
I agree with being honest with yourself, to include understanding rule #1 about pricing yourself out of your own neighborhood. I’ve a neighbor that has done just that, but the decision was either move and upgrade, or upgrade in place. His wife likes the neighborhood and the neighbors so they’ve upgraded to what they want knowing they’ll not honestly recoup if they sell, which isn’t in the plan for some years down the road. The house has expanded to the point it looks like a nice mansion stuffed onto too small a lot, not horrid, just not balanced.
Also, just because you add something doesn’t mean people coming to buy are all gung ho about it and want to pay for it. I had a deal working on a home and the guy absolutely refused to come down even a few thousand on price because he had spent $10,000 on these super premium windows for the home. His insistance at trying to recoup that recent purchase, added to some other issues, made what would have been a likely sale a deal breaker.
I am going to bookmark this post and show it to the next person crazy enough to tell me “with your budget, you could buy a little fixer upper!” Yes, I could, but I won’t have the resources (financial or otherwise) to fix it up! I expect that whatever place I buy will need a little work, but I think the price of home+renovations=market value of home is a good formula to use.
Most of the fixer-uppers in my city are in student neighbourhoods. I’ve been through a few of them with people who know the business, and the consensus seems to be that there’s no way I’d ever see the value of all the time and money I would put in.
I think that’s wise. Even if you can technically afford the mortgage payment, you may not be able to afford all the repairs. When we decided to buy our latest house, we thought we could afford the mortgage payment, but we didn’t really consider how much everything would cost, even with doing most of the work ourselves.
A steep learning curve, for sure! My husband and I, being handy, intellegent people, bought a fixer-upper just as the housing market was about to peak, and spent six years DYI-ing things from floor to ceiling. It was in an area we wanted to be in and about $200K less than the houses where we came from. What a deal, right? WRONG! We both earned good incomes when we bought but within 2 years the housing market crashed, contractors started closing up shop and, since my clients were mostly contractors and small busines owners, I lost my job. So, when we had money, we didn’t have much time and when I had time, we didn’t have much money. The lesson there? Have money set aside for projects BEFORE you buy. The other lesson? If you have children, prepare them for it. Our kids were 9 and 5 when we bought that house. At one point, they had no access to their bedrooms for about a week because the wall we were moving in the livingroom was shared by both of their rooms. And since the livingroom was under construction, both kids had to sleep in our room- my then 10 year-old on the floor and my then 6 year-old in bed with us because there wasn’t enough room on the floor for both since most of the floor space was taken up by stuff from the living room. My final thought: arm yourself with knowledge AND wisdom. Know the cost of ANY and ALL projects you’d have to under take and talk to others who have done DIY projects and gain some wisdom.
Honestly, I love the idea of a fixer upper but at this point in life my husband and I would not be happy with one. We both work, and neither of us would really enjoy spending the majority of our spare time renovating.
If I were in the market to buy I’d probably be looking at a house I liked the bones of, that I could live in with just a few coats of paint and some deep cleaning for a few years but that gives me the option to do more later.
Speaking as the wife of an ex-carpenter, if you buy a fixer-upper with the expectation that you’ll do the work yourselves, than you’ll live in an unfinished, unfixed up house. Tis a rare carpenter indeed that wants to work all week on other people’s houses, and then come home at night or weekends to work on his/her own house. It just doesn’t happen.
Agreed. It’s the case of the cobbler’s kids going barefoot!
On that note, I’m curious with what the OP meant by listing the people in her family who have contracting skills. Did you hire them to help out with installing cabinets, etc., or did you want them to stop by after work to do a project?
I liked this article, and I think that a fixer-upper might only work if you have the money and resources (time being one of them) to devote to fixing up the place. I have a few relatives who refuse to hire a contractor and will do it themselves “to save money.” And then they live with semi-finished bathrooms and never-finished decks because they don’t have the time/money/friends willing to help out on a weekend. For a bit more, they could have at least hired someone and had their projects finished within a week.
I think people watch too much HGTV and think they can redo their kitchen themselves in three days, and that’s just not possible, especially for people without the skills to do it.
One of the most frustrating things (to me anyway) is how long we take to finish projects. It’s almost worth it to me to hire it out, just so we can be done!
We don’t hire our family members to help us, we just ask (I’ll be covering this “mutual mooching” in a future article, because it has its own set of issues). Most of our families also live in old houses, so we swap labor. It’s not always fun or convenient (one summer we did three roofing projects), but it’s just what we do.
I have friends who have a deal with several of their family members. Each family gets one weekend of work from everyone else. The “host” family for the weekend buys the supplies and food and plans the project(s). Everyone pitches in. Then one weekend the next month its someone else’s turn to get work done. I think there are 3-4 families so it only uses up 3-4 weekends in a year.
It works for them because everyone shows up and actually works.
Ha! Excellent point. One of our good friends is a carpenter. It has taken him about 10 years to redo their house. The length of their remodels is an ongoing joke in our friend circle. His wife doesn’t find it funny in the slightest.
Maybe his wife should learn to do it herself. The quickest way to get it done, I’ve found, is to jump in and then have hubby help when I get stuck. Since I’m doing most of the grunt labor, it usually works just fine. Otherwise, it might never get done! Hubby is very skilled at these things, and I’m learning…
According to our inspection, our house needed some routine and some cosmetic repairs. Routine included a few minor electrical repairs with the garage door, as well as replacing the original 35 year old aluminum windows and adding a chimney cap to prevent rainwater from getting in.
Six months later, we had to put $6k into basement foundation. Then tree roots have gotten into the sewer many, many times, costing us nearly $2k in 8 years. Had to replace the HVAC $7,200. The windows cost $6400. Had to replace hot water heater $750. Two roof repairs $2k. We also added a fence once our children were born.
Either we had an idiot inspector or we have really, really bad luck.
Our neighborhood and property values have gone downhill since we bought the place. We’ll never get what we paid for it much less the improvements (new HVAC, new windows, new fence) that we added.
Your home inspector should have noticed that the foundation, hot water heater, roof, windows and HVAC would need replacing sooner than later. I don’t think there was any way for him to know about the roots in the sewer, though.
By the way, I think we had the same home inspector. Mine “missed” water damage to the subfloor- easily visible from the crawl space-, that the electrical panel was one that had been recalled because it caused a lot of house fires (if our home owner’s insurance had found out we had that panel, they would have dropped us), and that there was a pool of standing water under a portion of the house- again, visible to the naked eye.
I will NEVER buy another fixer again. We are paying pros to fix the big stuff (like rewiring the house, fixing the subfloor and addressing the water issue). As for the rest, we are making simple cosmetic upgrades and plan on selling ASAP.
Query — did you ask your home inspector about these clearly visible “problems”? If not, shame on you. In my current house, I did not want to spend an extra $100 on a septic inspection. Boy, was I glad my realtor insisted. The septic was shot and the seller had to install a brand new septic system for $75,000 as part of the sale. I also think hiring a foundation person makes sense if the house is old or on a hillside. With an older house with clay pipes, always assume there are tree roots. I had to learn that lesson the hard way, too.
I’m not sure how the inspector is to blame for this. The windows were visible to both of you, as would be the age of the HVAC and the water heater. The only place he is to blame is with the basement foundation problems. The damage to the roof could have happened once you moved in.
Did you get a sewer study done? That is the only thing that would have alerted you to the pipe problems. I think some buyers try to save money by not doing it, but our realtor strongly urged us to.
Plus unless they were falling out, you didn’t HAVE to replace the windows.
I’m a proponent of buying a home warranty. When we put our house on the market, we purchased a warranty which paid $1900 of a $2300 AC repair. The premium was $500, which would only be charged if the buyers picked up the contract. They went with another warranty co. so we didn’t have to pay the premium! We closed on a house last week. The sellers paid for the warranty and were nice enough to add the premium for the pool. After we closed, we found out the pump has a leak. (Which they knew about!) Hopefully, the warranty will cover the repair.
When we bought the house, it came with a 1 year home warranty. The warranty didn’t cover any of the problems we had in the first year. When we bought the house, the HVAC was only 5 years old. However, no one told us that it was the cheapest, low life expectancy system and it crapped out at the age of 11 years. Most systems last longer than that.
My parents have gone and are going through the same thing. They bought a fixer upper and have sunk so much money they will never recoup.
I think the most I can in terms of fixer upper are cosmetic renovations: installing wood floors, painting cabinets, and painting walls.
We bought (and fixed!) two such places so far. As long ad they had solid bones – ie no structural damage, we were in for it and willing to put the hours in. Untold hours painting, scrubbing, nailing, etc have bought us a long of equity in each of the homes even though we only purchased them a few years ago.
While I agree that being honest with yourself is good, it’s also good to be optimistic because it gets you to do things that are hard. And you learn. And finish them. Replacing siding on our place was hard and time consuming – but we saved thousands in labor costs by doing it ourselves! If I had known it was that hard at the beginning, maybe I would have not agreed to it…
It can work out, but I think it was easier to do this say 10, 15 years ago before the run up of house prices, when some areas of the country or areas of town were undervalued and then became developed. We bought a fixer- upper because that was all we could afford, in the area we wanted. It worked out because my husband genuinely likes working on houses, it is like his hobby (professionally worked as roofer, painter, rehabber). For things he didn’t know, he would hire people and watch and work alongside them to learn more. You have to have a high tolerance for living in a mess for years (decades). We liked the neighborhood because it was in walking distance of the local university, downtown, and both of our jobs (as well as being in a good school zone for all the university types). I would like to say all the repairs to our house has made our house increase in value, but all it really did was we bring it up to where it was supposed to be in the first place and increase its livability; primarily the increase in house value was due to our town in general and that neighborhood specifically becoming gentrified. Purchased for 74K, spent 40K? in house improvements (plus untold sweat labor), appraised for 190K.
Great question.
Bought my first of now five property investments as a primary home fixer-upper. I view it as an expensive learning experience. Lots of foolish decisions (6 ft jet tub, 2nd bth, high maintenance oven, etc.). In retrospect, I would have prefered to learn from helping others with their houses but maybe the lessons would not have stuck as well. Great lessons learned!
The last four houses have had minimal fix up costs. Because I’m borrowing from a bank, it’s a much higher % return that way. Less stress/time too. If I could qualify for an FHA 203k loan, then I’d think about buying a rehab. If you’re not familiar you basically borrow both the purchase price AND the fix-up costs…at 3.5% down. But I keep in mind that it’s another complication although at least I’ll know the home is new/good.
My dream Saturday involves family and not house repairs (though I guess we could try to combine the two) so it doesn’t make sense for me to do fixer-uppers right now.
Another excellent post. There’s nothing wrong with buying a fixer-upper, but it can be incredibly difficult to know and understand what you’re really in for until it’s too late.
Within a week of moving in to our own fixer-upper, 12 years ago, the city was already breathing down my neck to make improvements the previous owners had neglected. Of course after the closing, and shelling out all the costs associated with purchasing a home, the only resource I had left was elbow grease. I also had the benefit of having grown up in a house WHILE we were building it.
If you’re a do-it-yourselfer type, I still say buying a fixer-upper can be a fine thing, but unless you have extensive experience in old homes, and plenty of spare time, tools, and the cash for materials, you’re almost guaranteed for more than a few surprises. I’d still buy a fixer-upper, but I’d certainly make a few choices differently the next time through.
We would do things differently next time. Live and learn, right? 🙂
DH & I are so not DIY types that when we were house-hunting, we didn’t even consider fixer-uppers. For us, living in a house with huge maintenance problems would be the 5th level of hell. We bought a well-constructed 1200 sq. ft. Cape that had had maintenance done over the years but little to no updating, and we had a home inspection so we knew what problems we faced. It wasn’t cheap, but the price wasn’t too bad as it’s small and has only 1 bathroom ($269K – Boston metro area). It has good bones and we’re in the (slow) process of getting necessary updates (e.g., roof, electrical) done before tackling any cosmetics (I desperately want to ditch the kitchen’s 1970’s avocado decor).
Our neighbor across the street bought that house, a Colonial, for $150K (foreclosure – fire sale cheap here) and told me he’s put $60K of repairs into it thus far and still going. By the time he’s done, the total of house + repairs may come close to what we paid for our house.
I think that it is important to remember that if you live in any house for a long period of time, it will become a fixer-upper. We bought our 1883 house in 1987; seven bedrooms, 3 bathrooms, lots of space. It was not in good shape, but we were broke and so just went through and did cosmetic things to make the children feel at home. Then when two of them turned out to be extremely asthmatic several years later (NOT cause and effect), we sent them away for two weeks and basically gutted the downstairs. It then became a good place for children/teenagers. Now that it is down to just two of us and one dog, we are going through again and making it usable for retirees (not that we are there yet). It seems like a neverending cycle!
It’s true every house is eventually a fixer-upper. When we bought our house 17 years ago, it was in move-in condition. The roof and furnace were less than 10 years old then, and the kitchen had all new appliances and refaced cabinets. In the years we’ve been here we’ve added central air, replaced the hot water heater twice, replaced the entire HVAC system, painted the exterior twice, replaced appliances, refinished hardwood floors, painted nearly every room, partially remodeled two bathrooms, patched the roof, and the list goes on. And we’ll need to replace the roof within the year. Other than the HVAC, we’ve done all the work ourselves.
But now that we’re in our 50s, we don’t have the energy or inclination to work all day and then spend the evenings and weekends on house repair or renovation. So any future major projects will be hired out, and those requiring more energy than skill will be done by our teenage sons. They’ll work for food (pizza and wings in particular).
The other thing to consider with a fixer is your actual skill level. Its one thing to have time and the desire to fix things, its another to be able to do the work on a professional enough level that it doesn’t look amateurly done when you go to sell.
I realized early on in a cosmetic fixer i owned that my desire to lay tile and HGTV’s assurance that i could does not actually mean i can get tiles on a surface straight, properly spaced and with the correct amount of grout. If the results don’t look professional you’re hurting the resale value and may even have to have jobs redone before putting it on the market.
I think HGTV and the like have created an alluring fantasy/dangerous impression that everyone can be just as good as a professional electrician/plumber/contractor and its only a matter of time that keeps us away. There’s a reason these folks are professionals, they’re (barring the bad contractor experience) very good at what they do.
I owned and lived in the house and gradually had it fixed up over time, turns out the only thing i could really do well on my own was interior painting.
Yes, and I agree especially with your second paragraph. One of my friends moved into a condo where the seller watched too much HGTV and “fixed” a number of things around the unit. My friend – who is actually handy and knows what he’s doing – got them to drop in price drastically because of the work it would take to make it look presentable.
Wow – do I ever agree with you! We were so frustrated with our skills (or lack thereof) with finish carpentry (trim, etc.) in our bathroom renovation that we’re not sure we even want to tackle the second bathroom ourselves. I get to look at the gaps in our trim every morning :)…such an important thing to think about whether you would be happy with your own quality of work.
I’m glad I read this because HGTV makes everything look so easy haha. It would be nice if they did a show on how NOT to do things you see on their shows.
Actually they have two shows: Holmes on Homes and Holmes Inspection. Incredibly helpful and educational shows.
I bought a real, cheap fixer upper, but not as my primary residence. I bought it with the plan to rent it out to a tenant. It took a couple years to fix up because of 1) Lack of knowledge and 2) City-imposed restrictions that we had to get around. It’s finally rented out last month and we’re seeing a nice $600 / month positive cash flow come in (after all expenses– I don’t have a mortgage on the house).
But if I had to do it all again for a house I wanted to live in myself? I don’t think I’d want to surround myself in a construction war-zone but maybe it’s do-able if you section off your house repairs and not have it take over the entire house while you’re living in it.
Thanks for this article, Lisa — I thought it was well-written and I liked how you clearly showed the lessons you learned and gave some good heuristics for people who are going through the homebuying process.
I think the only thing I’d add is to the honest appraisal section, and it’s this: What are the other demands on your time? People with plenty of skills and equipment might be in a great position to buy a fixer-upper when their finances are secure and their workload isn’t overwhelming. The same people with a new baby, or with a partner working two jobs to cover an unexpected bill, or with ailing family members, probably aren’t.
Great points! I feel slightly overwhelmed with renovations on top of my job – and we don’t even have kids (yet) or caring for parents. This is definitely something to consider.
Yeah, we fell into the trap as well. I should have known better but at the time we bought even fixer-uppers were commanding a bit of a premium in the area we bought. We sunk about 25k in and realized that even if we sunk another 80k it wasn’t going to make us happy living in that house. So we sold broke even with expenses since the market was still frothy bought a house that was only 3 years old and have been pretty happy since, with no major repair bills, minor little stuff, knock on web page. Of course the house market crashed and we are underwater even with 20% down, but all things being equal I’d rather be underwater here than in the old place.
My spouse and I are currently buying our 2nd ‘fixer-upper’ in NYC. We find them to be a fabulous opportunity if you’re willing to deal with contractors. (Unless you’re a licensed contractor, DIY is prohibited in most NYC apartment buildings.) But, being apartments, we don’t usually have to deal with major structural issues.
Excellent article!
Great rules! I live in what I consider a fixer upper and I am planning on doing very little of the renovations on my own and will hire contractors but the math still made sense for my condo. The place has not been updated since the 80s so I am planning on entirely redoing the bathroom, the kitchen, and replacing all major appliances including the furnace.
Math-wise it made sense because it was the cheapest cost (based on square footage) in the neighborhood I love and, although I know the update would cost between $20k – 30k, the value of the place after upgrade should be at least $50k higher than the purchase price.
I think the fact that I am in a condo makes me feel safer, knowing that foundation problems, roof leaks, exterior, etc. are all condo association problems and the probability of something going terribly wrong is very slim. One day, when I am feeling brave, I might try with a house. 🙂
It is a big question. And it even goes beyond the numbers or ability. You also need to be willing to commit lots of time & lots of patience. Sounds good now. But what about 3 months? Or 6 months? When will it end? Unless you are someone who loves constant tinkering, these are equally important questions.
I think the most important thing to think of in terms of buying any house is the tradeoff between money and time. When buying a fixer upper, the additional trade off to consider is how you want to spend your time.
I would rather spend a few hours after work every evening working on updating a house than watch that much TV. My sister in law would rather watch movies in the evening, and has no interest in devoting her time after work to working on a house. There’s nothing wrong with either approach, but she was very unhappy when she had a fixer upper, and for her spending the extra money to buy the next house as a non fixer made sense. My second house is also a fixer, which is ok because I learned that living in a rental that I couldn’t make improvements to drove me nuts and I didn’t know what to do with myself in the evening. (And no, a second job was not an option as my contract forbade that.) Even if you will pay for outside labor, you still have to spend time supervising these people, and some of that time may be during the hours you are normally at work yourself.
I think it’s really important to be honest with yourself about how you will want to spend your time, and how you will want to spend your time years down the road, depending on how much fixing the house needs. If all your renovation experience comes from watching TV, it’s vital to get some hands on experience before you commit to a house that needs lots of work. You may discover that tiling which looks so easy on TV is not your talent.
Also remember that all houses need some work, if not when you buy it then definitely in the future, so if you are really not interested in doing any of that, renting may make more sense for you.
Dad followed all the rules, but still ended up losing money on a house he bought – in a great neighborhood, below the price of the average house and below the price of average house plus cost of repairs. He worked night after night on it after working his day job all day. He did all the work himself.
Sometimes things bite you beyond your control. He switched to stock market investing after that house!
My parents are serial fixers, as is my sister. I, however, have only ever lived in rentals and my skills do not (in all honesty) go beyond painting, changing out cabinet hardware, and installing baseboards. DH can change out a faucet or a light fixture, and he’s laid flooring. That combination of skills is, IMO, insufficient to warrant buying a known “fixer-upper,” which pretty much means any pre-existing house.
We do expect to have to do some maintenance work. But we don’t expect to buy a residence until we buy the one we’ll retire to. Our conclusion over time has been that we will probably be MUCH better off buying vacant land, putting in a new septic system, and placing a manufactured home on the property.
A MH is almost guaranteed (and in some cases, completely warranteed) to last as long as we’ll live in it. Those things have come a long way, design-wise, and many now have green features that would have to be retrofitted into a pre-existing house.
To us it just makes more sense to spend a known amount on a tightly-constructed house we can move right into, than an indefinite amount on an existing structure, with problems we can’t even begin to guess at – but have to assume are there.
Lol on the 2 RNs in the family! When we fixed up our first house, registered nurses on hand would have been nice. I ended up with a nail in my knee, scratches, bruises, you name it.
I bought a fixer upper and am still glad I did, but I had a lot going for me! First was that my dad is a retired building contractor who was able to dig deeper than the official home inspector and tell me with confidence that there wasn’t anything wrong that we couldn’t fix. Next was that Dad and several uncles who worked in the building trades had the time and desire to help with the fixing-up; if I had had to pay market rate for their labor (instead of paying them steak, crabcakes, beer and undying gratitude), the house would have been unaffordable. I had a cash reserve saved up to cover the material costs and the labor that I did have to hire (professionals installed the HVAC and anything else hooked up to gas). And the icing on the cake was that I had a 3-month window before the lease was up on my old place to get the majority of the work finished BEFORE moving in.
If any of these major blessings had been absent, buying and fixing this house would not have worked out well. But everything worked, and I am so happy now in my affordable little cottage, with vintage charm & modern plumbing, just the right size for a single girl and walking-distance from work. I’m gradually saving up for future improvements, like a patio and a white picket fence outside and built-in bookshelves and a gas fireplace inside.
My husband and I just bought a fixer-upper foreclosure for our first home. The price allowed us to buy in a neighborhood we could have otherwise not afforded, to buy a house large enough and that we love enough that we never have to move again, and to have lots of money left over for renovations.
We did make sure to have the most thorough house inspection(s) possible, and through that we learned that the problems were cosmetic and insulation-related; nothing electrical or HVAC or foundational or water leaking issues. One bathroom still has the Mamie-pink fixtures and tile from its last update, but you gotta love that old house character, right?
I wouldn’t say that we are particularly handy (oh dear Lord, did we learn this past weekend that my husband should NOT be allowed to tape or edge anything – rollers only for him from now on) but we do have a good network of family and friends who are willing to help us and teach us. And the money to hire professionals when needed.
For the first six months, we’re focusing on cleaning, decorating, insulating, and learning how we use the house and how we could better use the house before we do any major renovations.
Overall, we knew what we were getting into (I grew up in a Victorian lumber baron’s mansion surrounded by half-finished renovations) and are excited that we get to do it ourselves now.
I think the emotional aspect of buying a home can cloud our judgment, and there seems to be a popular idea that a home is necessarily a better investment than stocks/bonds/securities. The tax breaks are priced into the purchase price. So when buying a fixer upper, you should simply consider whether the price and work required are financially worth it. Will it at least bring the home up to the price for which you could sell it?
You may pay a premium for something you love about a house, but you should always ask the question as to whether or not the general market also prices this premium likewise. If not, then you should understand that you’re taking a risk.
Warren Buffett always says that you should only buy a stock if you would be comfortable if tomorrow, the stock market shut down for the next 10 years. When you’re signing a 30-year mortgage, you should be comfortable with the housing market shutting down for the next 30 years!
Also, renting vs buying isn’t as simple as monthly payment versus rent payment. There’s more risk when owning.
The last tip is major. Cosmetic upgrades that will allow you to make the home your own without necessarily having to replace the entire roof or every window frame is something to keep in mind. My friend and her boyfriend just bought a fixer-upper, and although it didn’t look like much, you could tell it was sturdy and would only take small changes to improve its appearance.
Haahaa – you’re not SHOCKED by the fact that you have a great FUSE BOX!
Also – yeah, it’s easy to get caught up in the HGTV of it all. I try to balance the hottie Property Brothers/Kitchen Cousins viewing with some Holmes Inspection. That’ll really open your eyes!
Honey, thank you for catching that! I wondered if anyone would spot it. If anyone would, it had to be the person who shared the jalapeno joke awhile back ;).
We are in contract for our first place (a co-op) and it needs a little work. We were able to purchase the property at a much lower price than we otherwise would have—we saw very similar properties listed for $20,000-$60,000 more. We are going to try to do as much work as we can ourselves—and as much as our co-op allows us to do. My dad, thankfully, is very handy. Unfortunately, my husband and I are definitely NOT.
It’s only a one bedroom, one bathroom property. We figured that we would stay with family while the bathroom is being done, which is nice because it will force us to get the work done very quickly. The kitchen needs work but as long as it functions, we won’t be taking on that project until later.
We are willing to do this because we will still have money leftover after putting 30% down. I would not do this if I didn’t have the cash upfront. And maybe it will keep me from ever buying something like this again. We’ll see!
Thank you for the great article and for the useful comments. You all saved me from making potentially a big mistake.
I would buy a fixer-upper if I were good at construction and woodworking. They are a good deal only if you can handle the work.
Personally I think they are really risky so I would stay away. Friends who have the skills and risk tolerance necessary to buy a fixer-upper have saved a lot of money by buying a foreclosure in “as-is” condition. It’s just not for me.
Even if you think you’re being honest with yourself:
–Take the anticipated monetary cost and double it. You will always find “surprises” that need to be fixed, changes in price, or changes in what you want that increase the price.
–Take the amount of time you think it will take, double it and increase the increment by one. So if you think a project will take a week, it will really take two months.
(From one who is in year 14 of a 1880s Queen Anne fixer upper…we thought it would take a year, so it’ll probably take two decades 🙂 )
We paid $6500 for our fixer-upper. We’ll have put at least that much into it by the time we’ve got it habitable. It will also need a roof, siding, and heating/cooling in the next couple of years. It’s in a poor neighborhood, but there isn’t a lot of violent stranger crime or anything like that and there are only two high schools in town to choose from for the kids, anyway, so that’s not a big factor.
It may turn out not to have been a great idea, but not having a mortgage was awfully tempting. Time will tell, I guess.
Very well written. The percentage allocation to real estate is usually the highest in any investment portfolio. Buying a house costs most people a huge part of their savings hence it pays to be meticulous.
Buyer Beware! Sometimes in life you need to take a chance and that’s exactly what my GF and I did when we purchased a run down uninhabitable house with the intention of converting into 3 flats.
We had a little bit of experience in property renovation / development but nothing to this scale. After doing our due diligence time and time again we still stuffed up pretty much everything.
The project ran over time, over budget and almost killed us physically. We worked like dogs through the night, early mornings and all weekend every weekend in order to get the damn thing finished.
When it’s all said and done, we created £200,000 of equity and a rental income stream of £600 (nett) per month. It now feels worth it, at the time, it didn’t.
My advice – if you’re going to do it, be prepared for a battle. Be prepared for things to go wrong constantly. You’re going to be on an emotional roller coaster ride. Take a chance, a calculated chance and go after it!
I married a man with a fixer upper he loved. 15 years later it was in nearly the exact same level of repair. Emergencies got fixed, but there still was only subflooring in most rooms, no closet doors, areas with no sheetrock, exposed stuff, etc. Turns out all of the “work” he thought he was doing (12 years to do the wiring?)was just an excuse for avoiding the rest of his life. It never got done and neither did many other things. When I would push the project forward by making my own decisions and hiring people, he would get all huffy. But he really thought he could manage a full time job with a 4 hour commute each day, two huge volunteer commitments and just putter around the house anyway. We couldn’t even have people over and in retrospect that was probably a large part of the appeal for him, being so “busy” working on the house that there was no other life. We are no longer married but I would never live in a fixer upper again.
There’s another great reason to buy a fixer-upper. If you can pay for it in cash, then what would have been a mortgage payment can now be applied to the repairs. And every $1,000 you spend on the house, is actually going to the house (and not, as is the case in most mortgages, almost entirely going to interest in the early years). Heck, even if you end up spending $50,000 for a $35,000 bump in appraisal value…just the fact you didn’t pay interest just might make up for the difference (not saying that’s a great situation, rather it’s not necessarily as bad as it may look on the surface).
We bought a fixer-upper. Was barely move-in ready (maybe we just had lower standards). Had to rip up carpets and put down new flooring, replace some windows, do some painting, install a heat pump, stuff like that. Still needs more work, BUT…it’s liveable, and it’s paid for.
I completely agree about fixer-uppers. I went through the process myself with a house bought dirt-cheap at sheriff’s sale.
The rule I came up with for house-buying is this:
“Always rank your price-affecting criteria highly in direct proportion to your inability to change them.”
So for example, buy houses based on stuff that’s difficult to change, such as lot size, location, neighbors and school district. Do not buy houses based on stuff that’s easier to change like house condition or landscaping.
I just bought a 1909 house in Portland. It has a brand new roof, new exterior paint, new sewer pipe, 5 year old gas furnace (recently serviced and cleaned), 5 year old gas water heater, ok electrical panel, and repaired chimney. The inspection was pretty clean with little to no dry rot, dry basement with no leaks/dampness and little deterioration and some double pane metal rim windows to be replaced eventually (not leaking today). The 2 bathrooms are dated, but fully functional as is the 70’s kitchen. Lots of wallpaper to remove along with ugly carpeting over oak and Douglas Fir flooring. Gonna remove carpeting first along with doing a light update to the main bathroom. Wallpaper coming down along with these projects. Slow updates on everything else. The yard is to die for with nearly a third of a acre in the city. So, I feel ok about what I’m getting myself into and see a great family home for years to come.
Leave it to the professionals if you don’t have time and knowledge in fixing things! If you have the right tools and has plenty of time them by all means do it but its not for everyone!
Rose
You can do it. But the fundamentals have to make sense. And someone has to be a superior organizer and project manager (great opportunity to use Kanban boards and Agile processes to chunk projects, etc.). Get an honest appraisal, with some estimates, before committing. Triage those projects according to the money you already have secured (beyond the downpayment for mortgage and taxes and insurance, plus the basic tools to do these projects in the first place). Do everything you can yourself – there is a wealth of information online in forums, visual demos on you tube, etc. People are very generous with knowledge, and always appreciate a humble DIY’er to a know-it-all who doesn’t know it all. Here are some things you can do yourself – buck a tree (read safety manuals, you can do this), build a proper retaining wall and French drains, move bushes, build slipform stone walls from field stone, wash and stain (even hang new) siding, clean your own wood stove, hang drywall and point up, install new shower liners, install tile with grout, upgrade crawlspace – dig and install pit and sump pump and French drain tiles and install vapor barriers, repair hardwood floor scratches and dents, install closets and doors, install trim and baseboards, loads of troubleshooting (appliances and plumbing and electrical), install new sinks and toilets and so forth. So much you can do. And by using a project management system like Kanban, you can pace yourself, intelligently chunk the project (save $, acquire, prep space, work on stages of the project).
You can do it. If you are married, neither of you can be impatient people or impossibly picky – money often dictates what you can reasonably do or pass on. It’s okay to argue and disagree and get frustrated and feel overwhelm, but eventually you have to paddle back to reality that you chose this life and this house and that you should be thankful for that (new) roof over your heads. When it comes time to hire someone, pick a local fellow who comes recommended (check those references). They will invariably be better than the renovation companies. They care more about doing it right, and they will often through in that “extra mile” of effort for you if you are kind and a good customer who will likely repeat business and recommend them further. Don’t be a cheapazz. Good work is good work and should be compensated. When you have sticker shock over what baseboard install costs per linear square foot, just do some math on how much you spend on a bottle of face cream per ounce (higher than gas per gallon) or what you splurged on when you bought that leather couch. And remember that the fellow you hired has to pay fica and insurance, too. Nothing’s free. Don’t be cheap or contractors will start giving you kiss-off quotes so you will go away.
There was a time when couples started out with nothing but dirt floors and four walls, and the toilet was out back. Likely your grandparents did this, or your great-grandparents. It made them tough and unflappable. You can be, too.
Can you help me get started i would like to make it my business.thankyou
I purchased a a complete money pit that had been flipped, I purchased it for 5000 less than other properties that were on the market in the area however when I moved in I noticed that the roof needed replacing, timbers had wet rot, some timbers in the floor of attic had just been cut through, a rats nest of wiring, wiring was not earthed or bonded; the boiler needed replacing, the property suffered very badly from condensation, two flat roofs needed replacing, double glazing was coming to the end of its lift, the water supply to the property was lead, needed a new kitchen, new bathroom and then on top of that all the cosmetics stuff sorting, flooring, decor etc. When I would have had to factor in the cost to bring that property up to scratch the cost would have been 10000-15000 more than what other properties would have sold for in the area so I just gave up (perhaps a little foolishly) I ended up selling to a house builder who gave me more than what I paid for it. It still hurts me to this day that I gave it up; especially now that I am in a stinking new build which I hate : ( Always always get a survey folks