Tell a fixer-upper from a flop
Is that bargain house a diamond in the rough? Or should its next tenant be a wrecking ball?
You want to buy a home, but you don't want to pay 20 percent more for a brand-new home with all the bells and whistles already built in. It just so happens that you're pretty handy and are willing to trade in some "sweat equity" for a great deal on a house that just needs a little TLC. Buying a place that needs some upgrades is a tried and true formula for getting more house for your money. However, not all "fixers" are the same, and not all of them are going to be right one for you.
There are houses for sale and in need of repair on every other block. How do you know which one is a potential money maker for you? Most properties that are fixers generally fall into one of these three categories- including the one you want to run far, far away from.
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1. The cosmetic fixer
This is the house that just needs a bit of clean-up. The sale price is discounted slightly because the sellers and their agent know that there is work to be done. For whatever reason, the sellers didn't want to invest any more time or money in the house prior to sale. Things like new paint, carpet, countertops, lighting, landscaping and a few new appliances will give this cosmetic fixer the face lift it needs. A few dozen trips to the home-improvement store should do it.
2. The downright-ugly fixer
It may be downright ugly, but it is beautiful to you. It has all the right things wrong with it. This is the fixer that needs more extensive repair and remodeling work than the cosmetic fixer mentioned above. If you can see its potential beauty, and are willing to commit to the work, you will get the deal that others miss.
Some hallmarks of a "downright ugly fixer":
- No current curb appeal: It's easy to create with fresh front-door paint, new house numbers, mailbox, flowering plants and fresh landscaping
- Great bones in bad shape: Good construction and architectural lines that have been underutilized or unaccentuated
- Dark interiors cloaked in ugly decor: These turn off other buyers, but this is gone as soon as the moving vans pull away with the seller's possessions
- Outdated kitchens: Upgrading your kitchen will be one of the biggest expenses, however, it gives you the biggest return on your dollar
- Outdated bathrooms: There are so many great options for bathroom upgrades now at your local home-improvement store. You may need to bring in a plumber and tile guy but it will be worth the effort.
- A house with pets, smokers or other bad smells: Nasty smells aplenty turn off other home shoppers, but a revamp of carpets and drapes and new paint will usually take care of that smelly issue.
- Leaks in the roof and a water-stained ceiling: These can really turn away potential buyers – but you will most likely be putting on a new roof, so that will usually eliminate the source of the problem
- Lots of small rooms, creating a choppy or claustrophobic feeling: Look for potential to remove a nonloadbearing wall that could open up a kitchen to a living room or den, giving you that all desirable open floor plan.
3. The fixer tear-down
When I say "a house with the wrong things wrong," this is the one I mean. This "tear down" house with "broken bones" is the money pit you must run from. If a house has major structural, geological, or severe foundation or environmental problems, you don't want it. I repeat – you don't want it. Even if you get the house on the cheap, some problems never go away and are sometimes impossible to fix, no matter how much money you throw at them. This is a Pandora's box you do not want to open, because you will never see that money back.
Some telltale signs of a tear-down:
- Structural problems that are beyond repair economically
- Major shifting due to poor foundation work
- Unsolvable drainage issues and flooding of the basement
- Illegal room additions that appear to be not to code, especially bathrooms
- Major fire, earthquake or flood damage
- An unstable hillside near the house or slipping or shifting due to soil erosion or flooding
- Overwhelming asbestos or severe mold issues
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There are no hard and fast rules, just advice that is offered to amateurs who might not have any idea what they are getting into.
In the end, the stopper could be a bank and its appraiser. If they won't lend on it, you've either got a heavily discountable cash sale property for another investor, or a long term rental.