If you are in the market for a house with a limited budget, you may want to consider options that require some repair work before they are inhabitable. However, you must consider the additional costs that are needed to “fix-up” the fixer-upper to assess if it is actually even worth it.
Here are 5 steps that you can follow to assess the real cost of buying a fixer-upper and decide whether you can afford it.
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Get a quote for how much renovations will cost before making an offer
Consider everything that needs to be replaced or repaired. Structural repairs in London can cost a pretty penny. Your best bet is not to purchase a property that requires major structural work unless the price has a hefty discount, you know the extent of the problem and have assured that the problem can be fixed. It would be best to get a written cost estimate from your contractor. Then add a cushion to cover unforeseen repair costs which usually pop out in old houses and factor this cost into your budget.
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Look at what (and if) you can DIY
Your favorite TV show may make it look easy and satisfying, but in reality, DIY is difficult and requires a lot of expertise if you don’t want your home to look like a kindergartener’s craft project. Take into account your actual skill level and the scale of the task. Consider if you even have the time to renovate your fixer-upper yourself. If not, mentally prepare yourself for living in an unfinished house until you chip away at the work one weekend at a time.
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Check Financing Costs
Before you make the down payment, make sure you have enough money closing costs and repairs without completely draining your bank account. If you are looking to finance your purchase, make sure you factor in debt servicing and other fees including interest.
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Calculate a Fair Purchase offer
Consider what the property would be worth in the market if it were in good condition and fitted with modern conveniences. That is the fair market value of the property. Calculate the upgrade and repair costs and subtract those from the fair market value. It may be a good idea to share your calculation with the sellers and make or negotiate an offer that is fair.
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Include inspection costs and inspection contingencies
It is worth the money spent to hire professionals to carry out common inspections instead of relying on friends or just having your contractor eyeball it. A thorough home inspection may reveal issues that you had no idea would even be a problem, like plumbing leakages, lead paint, radon, mold, pests, septic and well health, or major irreparable structural problems. While most home inspection contingencies will allow you to claim the cost of such repairs from the sellers, the sellers might instead give cash at closing to cover the costs. However sellers may also back out of the deal at this point, and as a buyer, you have the same option, if the inspection turns up something particularly nasty.
