Binge-watching home improvement TV shows can leave you with the impression that buying a fixer-upper is always a great opportunity to buy a house below market value and turn it into the home of your dreams. While that might turn out to be true, it only tells half the story. Renovating a fixer-upper is not for the faint of heart. It takes patience, effort and a lot of money.
Thanks to a limited inventory of affordable entry-level housing and the aging of The housing stock of the United States, A growing number of home buyers are considering repairs. TO new survey from LendingTree, the nation’s largest online lending marketplace, finds that watching home renovation shows also appears to make people more likely to want to buy a fixer-upper home. LendingTree surveyed 2,094 home buyers who watch home improvement TV shows. Of HGTV or DIY Network viewers who tune in at least once a week, 81% would consider a house in need of repair. About two-thirds (66%) of people who never watch those shows also say they are willing to buy a fixer-upper home.
While a fixer-upper may be attractively priced, the markdown may not offset the basic renovation costs. Do the math. “A lot of people have a misconception about what they have to do with a fixer-upper,” says Tom Silva, a general contractor who stars on the PBS home improvement show “This Old House” and its companion series, ” Ask This Old House.”
“They have to think about the age of the house,” Silva explains. “They have to think about what they plan to do themselves, if anything. Will they just buy the house and hire people individually, or will they hire a contractor to handle the job? It can be an overwhelming process if you don’t really know what you are doing. You have to be careful not to go over your head.”
In 2015, Lauren Mochizuki and her husband, Kyle, purchased a two-story Spanish-style home in San Juan Capistrano, California, that was built in 1976. It was in a great neighborhood, but the four-, three-, and five-bedroom house with half bathroom needed improvements to adapt it to the 21st century. Mochizuki, 33, remembers thinking: “He has big bones, he has great potential. “I could see that if we tear down certain walls and open up certain things, it could eventually become what we wanted.”
The nurse and mother of a 5-year-old boy and 3-year-old girl watches home renovation shows when she has time. “Love to be inspired by different designers, see the latest trends and get ideas for DIY projects,” he says.
The Mochizukis stayed in their house for two years while they figured out what would make them feel better about their living space, paid off debts, and saved money to renovate the entire house. In November 2017, they chose to move temporarily to avoid the inconveniences and inconveniences of a large-scale remodeling project, such as dust, noise, and workers coming in and out of the house all day. The family returned to their remodeled home in February 2018.
Dan DiClerico, home expert at a home services company HomeAdvisor, says: “When you’re talking about buying a fixer-upper, the whole calculus changes because you really have to take into account the cost of renovation. If the home is move-in ready or close to it, you just have to come up with the down payment or closing costs. Discovering the real cost “About what this renovation is going to cost me, that is one of the most difficult parts of the entire process.”
A good rule of thumb for all homeowners is to expect to spend at least 2% to 5% of the price of your home on maintenance and repair costs annually.
“Let’s say it’s a $300,000 house,” DiClerico explains. “That first year, owners will spend between $6,000 and $15,000 just on basic maintenance. So it’s already a pretty big number. If you’re talking about a fixer-upper home with fairly significant renovation costs, you’ll need to spend at least 10 percent of the home’s value, or about $30,000. And that’s before you start talking about the new kitchen.”
Many older homes are not up to code and are bought and sold as-is. A FHA 203(k) Loan allows you to combine the cost of purchasing or refinancing a home with the cost of renovating it. The FHA requires that you use a minimum of $5,000 for eligible repairs or improvements and that the repairs be completed within six months of the loan closing, depending on the extent of the work to be completed. This first $5,000 primarily covers eliminating building code violations and modernizing or making health and safety-related improvements. Some lenders will only offer conventional loans for smaller cosmetic repairs rather than structural renovations.
Mochizuki says it’s worth planning and budgeting for a renovation at least a year in advance of the planned project. In fact, she writes a Blog about living within your means. “We started looking for flooring, appliances and lighting fixtures well in advance,” says Mochizuki. “This was a plus for us as I was able to put many of our vanity mirrors, cabinet hardware and bathroom sconces up for sale as I was not in a rush to purchase them.”
The couple hired a contractor and his crew to complete most of the work, although Kyle, a firefighter, handled some demolitions himself to cut costs. “What we asked of the contractor when he created his bid was for him to give us as broad a breakdown of each room as possible so we could see what we were dealing with,” Mochizuki says. “That was really helpful in making budget decisions along the way. “We had money reserved.”
In the bathroom, for example, they did not change the position of the toilet, sink or shower, since moving the pipes would be a big expense. “The biggest plumbing expense was when we modified things in our kitchen. We knew that was a priority and that’s where we knew where we would want to spend our money when it came to the plumbing category,” Mochizuki says.
The end result of their kitchen renovation was approximately $68,000, including appliances, labor, removal of two walls, and installation of a stud. This also included the pricing and installation of accordion windows and doors. Other big-ticket items included the refrigerator, oven and stair railing.
Before you start swinging sledgehammers and knocking down walls, be realistic about your experience. You may want to leave some projects to the professionals. Also, find out if permits are required. Outdated or faulty wiring and plumbing systems can be dangerous to an inexperienced DIYer. Silva warns that lead-based paint and asbestos could be lurking in homes built before the 1970s. He says the key to a good home renovation is to renovate one room at a time. If everything is destroyed, you are likely to feel overwhelmed by the snow.
“I always tell people that if you’re doing the work, it’s going to take longer than you think,” he said.and explains. “The smartest thing you can do is choose a room that you know you’re going to renovate anyway, like, say, that bathroom. Hopefully, you will have another bathroom that you can use in the renovation process. Do whatever it takes to make that bathroom legal and complete. The keyword is complete. “Once that room is complete, move on to the kitchen or the bedroom or whatever because it will be a long process to do the first room.”
The old adage of buying the worst house on the best block can be an effective real estate strategy, DiClerico says. But he warns: “You have to do the math and the numbers have to work, because if you get stuck with that top fix and you are not able to make the necessary repairs and improvements, then you have not done yourself any good and will probably come out of this with the worst consequences.”
Purchasing a home for renovation gave the Mochizukis the opportunity to make their house their forever home. “We don’t see ourselves moving,” says Lauren Mochizuki. “The reason we did something in almost every room is because we knew we were going to be here forever.”