Going head long into a house renovation project without doing your homework could end up being an exercise in frustration. Careful planning and budgeting is crucial for a fixer-upper project to be a success. To make a decent return on investment, you'll need to research a range of items from proposed repairs, cost breakdowns to the future saleability of the home. A slight misstep in planning or unforeseen circumstance can quickly turn that fixer-upper, into a fixer-downer.
Find a Fixer-Upper
Locate a property that suits your needs. Properties with major structural issues may not be the right fit if you're a beginner. If you're on a tight budget, you may benefit from a smaller home with a low price tag. Property location also plays a key role when identifying a good fixer-upper. Ideally, the house should be in a neighborhood with several recent sales that support a higher after-repair price. When shopping for a fixer-upper in a particular area, make note of the amount of time homes spend on the market; characteristics of recently sold homes and prices may influence how you market yours.
Determining the repairs upon which to focus influence the outcome of fixer-upper projects drastically. Real estate agents, contractors and building inspectors can be valuable sources when deciding the most cost-effective way to fix up such a house. The objective is to spend as little money as possible to increase the chance of a decent return on investment. Place necessities such as safety, structural or code enforcement issues at the top of your priority list. Place items that add appeal or value in order, from highest to lowest priority.
Buying and selling investment property is all about the bottom line. From the price you can charge for the house -- determined from a careful review of a comparative market analysis of the neighborhood -- subtract the costs of property acquisition, repairs and selling to determine how much profit you can expect. As an investment property buyer, you should always evaluate every possible detail such as code regulations, contractor bids, material costs, and permit and real estate fees. Allow a fair amount of wiggle room in your budget for surprises.
The end result of a fixer-upper project doesn't have to be perfect, it just has to be salable. If the numbers add up favorably, and the home can be lived in, it may be appropriate to start marketing it. Don't over-renovate the home; this can eat up your time and potential profit. Holding onto the property for as little time as possible means less carrying costs.
Meribeth Phipps has been a real estate broker since 2000, specializing in residential new home sales. She holds a bachelor's degree in business and marketing.