With the popularity of HGTV shows like “Property Brothers” where two twin brothers help home buyers purchase and renovate "fixer-uppers” you might be asking yourself “should I buy a fixer-upper?”
For people who love old houses, and love to work on them, the idea of buying a fixer-upper is attractive. But a fixer-upper might also be a newer home that requires very little work.
In fact the ideal fixer-uppers are those that require mostly cosmetic improvements; such as paint touchups, drywall repairs, floor refinishing. All of these generally cost much less than they return in market value. New lighting fixtures, doors, window shutters and siding, as well as updated kitchens and bathrooms, are also very lucrative improvements.
Sometimes it's possible to wrap cosmetic improvements into a structural repair to increase the value of a fixer-upper. Let’s say you have to replace the roof, this could be the perfect opportunity to add a skylight at the same time. Or you might want to install a bay window where there is dry rot in a wall. The key though is not to over improve. In other words, remodeling investments should not raise the value of your house more than 10 to 15% above the median sale price of other homes in your area for maximum resale value (according to the National Association of Home Builders.)
Once you’ve made the decision to purchase a fix-upper, often the real difficulty comes with paying for the entire renovation. Often after such a purchase there is not a whole lot of extra cash lying around when you take into consideration that one has just made the down payment and paid all closing costs. Thus coming up with additional money to cover repairs or remodeling can be challenging. But there are renovation loans, either through a home equity line of credit or a mortgage. Home equity lines can generally be borrowed against 90% of the equity that the homeowner will have in the house after the repairs and remodeling are completed. For instance, let’s say a person buys a $250,000 fixer-upper with a down payment of $25,000, and the house will be worth $425,000 post-renovation, the homeowner will have $200,000 in equity. So even before the work is done, the borrower is now eligible for an $180,000 home equity loan! The interest rate on a home equity loan is about the same as for a mortgage, but only up to about $100,000 in interest is tax deductible. There are also FHA 203k loans and they're offered by the Federal Housing Adminstration. There are 2 different types of loans, regular and streamlined. Regular 203k loans are for homes that need structural repairs and streamlined loans are for those that need non-structural repairs.
During the down economy, home remodeling took a bit of a backseat and wasn’t as popular as it was a few years earlier. But that is changing, and for the better! According to a 2013 Hanley Wood survey, remodeling sales were up 10% compared to 2012, and 45% of remodelers surveyed expected another 10% growth just this year alone.
In our next blog, we will talk about some of the latest trends when it comes to remodeling your home and more reasons why a fixer-upper might just be a wise investment for you. --