Can You Make Money from a Fixer Upper? Read This to Find out How….

Have you watched “Fixer Upper”, the popular show hosted by Chip and Joanna Gaines? If yes, you must be familiar with this popular concept. Arguably one of Chip and Joanna’s profitable jobs was a 2013 Waco home purchased for $28,000. The selling price? Hold your breath – a cool $ 1 million!

What is a Fixer Upper?

Essentially, a fixer upper is a real estate property demanding repairs. These repairs can be minor or major in nature. Because this property is in such poor condition, it loses appeal among real estate investors. And precisely, that’s the reason why, the fixer upper market is a lucrative one for experienced investors.

While buying a fixer upper, you are likely to deal with highly motivated sellers. Apart from getting a great bargain, you will also learn how to deal with different inspection agencies and contractors.

Finding the Perfect Fixer Upper

The right Fixer Upper is the one which few buyers are willing to consider in “as-is” condition. However, when fixed, it will be a buyer’s dream. For instance, conventional wisdom dictates that a fixer upper in a good location will sell faster. What is the condition of the neighborhood? Are there good schools nearby? Are most of the houses owner occupied? We certainly recommend you consider buying a fixer upper in an upscale neighborhood.

Look for a 3 bedroom or a 4 bedroom house with 2 bathrooms or more. This shall appeal to the largest demographic. If your fixer upper is a 2 bed 1 bath house, your prospective clientele becomes smaller and it shall be slightly more difficult to find a buyer.

Another Pro Tip – Buy a Fixer Upper with a good layout. A couple with a child would ideally like both bedrooms on the top floor. If the master bedroom is on the first floor and the other bedrooms are on the ground floor, this shall turn off lot of potential buyers.

Three Mistakes that you should avoid while buying a Fixer Upper

Avoid paying too much

“If that client bought that house for too much money, they are already in a pickle. We haven’t even gotten to first base and they’re already behind the 8-ball”. – Chip Gaines

So, the first mistake that you should avoid is – do NOT end up paying too much for the property. Ask yourself BEFORE inking the deal, “Do I have enough to cover the cost of the house AND repairs?” If you end up paying too much for the house, you won’t have enough capital left to carry out the necessary repairs.

Do not skip a Home Inspection – Prepare that Home inspection checklist now!

It is certainly wise to prepare a detailed home inspection checklist and hire a reputed home inspection agency to inspect the house. Doing so will give you detailed insight into the extent of repairs that the house requires. Certainly, a trained professional eye will identify defects that you are likely to miss.

It is advisable to hire an inspection agency that is certified with NACHI (International Association of Certified Home Inspectors), ASHI (American Society of Home Inspectors) or NIBI (National Institute of Building Inspectors)

Do not settle for poor contractors

We do not mean that you go out and hire the most expensive contractor. Not at all. However, both cost and quality should be a criteria for hiring a contractor. You SHOULD hire a good yet affordable contractor who can provide reliable cost estimates. Underestimating costs is the number one reason why real investors tend to lose money on Fixer Uppers.

This contractor should have the right equipment and manpower to carry out these repairs as well. Some of the smaller repair jobs can certainly be DIY jobs.

If you simply go with the lowest bid and give no consideration to references or work quality, you can be certain that the end product will be shoddy. And home buyers are no fools! When you try to sell your property, you definitely won’t get your selling price.

Can you recoup the money that you put in your home remodeling?

Homeowners are remodeling their homes like never before. According to the Leading Indicator of Re-modelling Activity (LIRA), homeowner’s will spend a massive $340 billion in 2018 on remodeling their houses. This represents a healthy increase of 7.5% of the previous year. This increase can be attributed to a booming economy which has resulted in increasing home prices and a surge in an owner confidence.

Rather than just going for necessary fixes like water leaks, home owners are going ahead and “investing” money into that much delayed kitchen remodel. But, is remodeling really an investment? Data seems to suggest so.  According to Cost vs. Value Report for the South Atlantic Region, percentage recouped for the following remodeling projects was the highest.

So, if you put in new attic insulation, you will get back more than what you spend at the time of sale! You can recoup 83% of the value of a minor kitchen remodel.

Conclusion

To sum it up, a fixer upper can fetch you money provided you focus on your PLANNING. Do not let emotions cloud your decisions. Hire a reliable home inspection agency and reliable contractors to prepare accurate cost estimates and then execute the repair work. And make data driven decisions. While your $28,000 investment may not grow to a million, you can certainly make a respectable return on your investment if you follow a systemic real estate investing approach.