6 Benefits of Investing in a Fixer UpperJune 30, 2022
Buying a house that needs fixing up can be a good investment for those who like a home improvement project. When you purchase a fixer upper, you can expect to put in hard work and creativity, but the benefits of renovating this type of property can make the effort you put in worth it. Discover six benefits of investing in a fixer upper and why, with the right approach, mindset, and professional quality tools, your purchase can give you a big payoff.
1. More Affordable to Purchase
Fixer uppers are typically more affordable to purchase than a move-in-ready property. When you think about buying a fixer upper, you’ll want to consider:
- The list price
- Estimated cost of repairs and renovations
- Projected home value
- Value of similar homes in the area
- The neighborhood
Generally, you can offer lower than the asking price for fixer uppers. Many sellers simply want to get the property off their hands and move on to a new location. If you calculate the total cost of repairs and inspections and subtract this from the expected home value, you can offer a low price that allows you to get into the property and make a profit.
2. Can Offer a High ROI
With the right strategy, buying a fixer upper can offer you a high ROI on your investment. In some real estate markets in the U.S., house flipping provides over a 100% ROI. For example, in Oklahoma City, Oklahoma, flippers can earn 196.4% over their initial investment, and in Omaha, Nebraska, the ROI is around 135%.
If you don’t live in these areas, you can still earn a high ROI by investing in a fixer upper. Although ROI rates have fluctuated in the past two years due to a wild and unexpected housing market, the ROI remains around 40.5% for those who buy and sell these properties. If you aren’t buying your fixer upper to sell right away, you might also consider the non-calculable ROI factors. These include designing your own space, revamping a historic property, or getting into an otherwise hard to get into property.
3. More Creative Control
The beauty of buying a fixer upper is that you have complete creative control over the design and renovation elements. Since fixer uppers are usually older homes, you may find that your property features outdated elements like wooden spindles, partitions and closed-off spaces, shag carpeting, wood paneling, or linoleum flooring.
You can change these issues with design creativity and update the investment to create a modern, livable space. Consider removing non-load-bearing walls to open up the kitchen, dining room, and living room areas. Replace worn linoleum with stylish large format tile or hardwood. Rip off dark wood paneling and exchange old-fashioned faucets and appliances. Use your design-savvy skills to change your fixer upper into a lovely, updated home.
3. Gain Access to a Better Neighborhood
Buying a fixer upper can allow you to gain access to an otherwise out-of-reach neighborhood. You may want to live in a particular location or housing development but don’t see any homes on the market. Likewise, you may want to buy a home where the property values and list prices are just beyond your current budget.
If you have your mind set on a specific neighborhood, try looking for homes in the vicinity that seem rundown or need repair. You can research property auctions and look for foreclosures in the neighborhood or consider listings nearby that have been on the market for a long time. You may purchase a fixer upper in the area for much less than the going rate, allowing you an “in” to the location. Over time, you can perform renovation work to elevate the property to the neighborhood standard. Just focus on updates that match those of other homes in the area so that your property maintains the same market value.
4. Makes a Good Starter Home
A fixer upper makes the perfect starter home for young couples looking for their first property. Fixer uppers are usually older and smaller than traditional homes and allow couples to get into a property that they may not be able to afford under other circumstances. Fixer uppers also require planning, budgeting, and teamwork, which can help new couples work on their relationship while they grow the equity in their investment.
If you buy a fixer upper as a starter home, you’ll want to invest in a variety of tile tools
and other construction equipment so you can make necessary repairs and improvements. For instance, you may put in new kitchen and bathroom tiles or knock down partitions to update the home and turn it into a worthwhile investment for your future.
5. Less Buyer Competition
In the current real estate market, most properties only stay listed for about 18 days before a buyer scoops them up. Competition for homes is fierce, and bidding wars can make it challenging to purchase turnkey houses. The market for fixer upper homes differs from the traditional market. While you may face competition from professional house flippers in some areas, such as Seattle, Phoenix, or Tampa, you’ll likely have little to no competition in other locations.
Less buyer competition means you can obtain a fixer upper home for a lower price. It also means you likely won’t have to engage in bidding tactics like compromising on the closing date or waiving certain contingencies on the sales contract. Without competition, you can also take your pick of available fixer upper properties in your area. Take your time and research homes in different neighborhoods, and only make an offer on a house that you believe will meet your needs or pay off as a real estate investment in the long run.
Make Your Fixer Upper a Worthwhile Investment
Investing in a fixer upper can give you a significant ROI with the right approach. There’s less competition to purchase a house in need of renovations, and you often pay less in property taxes. Most importantly, if you decide to rent or sell your property, you can earn a high profit to fuel further investments. Make your fixer upper a worthwhile purchase with the right creative design choices and investment plan.
Infographic created by Chicago Real Estate Institute, Offering Classes to Help Obtain Your Leasing Agent License Chicago, IL