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Last Updated on 7 December 2020

Buying a fixer-upper first home: is it a smart move?

Key Points
  • A fixer-upper can be a smart buy, because it can get you into a desirable location for a bargain price.
  • When shopping for a fixer-upper, be wary of cracks in the foundation, sagging ceilings, and water damage as these could be indicators of larger, more expensive problems
  • Fixer-upper home loan types include construction, top up, and line of credit loans, as well as those with a redraw facility.

How to spot a fixer-upper

So you’re thinking of buying a fixer-upper—it’s a bold move, but one that could work in your favour. Before we talk about the ups and downs of fixer-upper first homes, let’s look at the basics. How can you spot a fixer-upper?

While many homes are in need of updating or minor renovations, a fixer-upper is generally a level up. It’s a house that needs major love, and might not be inhabitable right off the bat.

That’s not to say that you’re buying a dump (though that is a possibility), but that you see the potential in a home and you’re committed to bringing it out.

A fixer-upper often has a price tag that’s significantly lower than similar layouts in the area. This is an indication that there’s some work to be done.

Why buy a fixer-upper?

The obvious appeal of a fixer-upper is its bargain price. Buying a fixer-upper can get you into a location you want at a price you can afford – assuming the renovations are within your budget as well.

Fixer-uppers can also attract borrowers who hope to re-sell the house after renovations are complete. For example, a first home buyer may buy a fixer-upper, live in it while repairs are taking place, then sell it a few years down the road for a profit.

If your goal is to sell your fixer-upper at a profit, be careful what you wish for. Many renovators make the mistake of calculating value based on the initial purchase price + cost of renovations + added profit margin.

In reality, take a look at how similar properties in the area are valued. This gives you a more accurate picture of what the home might be worth once it’s in tip-top condition.

A fixer-upper can be like a blank canvas. Not only is it a chance to get into your preferred location for less, it lets you dictate how you want the house to look.

As long as you’re willing to do some work to get it that way, of course.

When to walk away from a fixer-upper

Not all fixer-uppers are a good idea. But how can you tell the duds from the diamonds in the rough? Here are some signs to look for.

Signs of structural damage
In an ideal world, a fixer-upper would be a simple facelift. If all you need to do is add a fresh coat of paint and change the lighting, congrats! You may have a keeper.

But if the house shows signs of structural damage, that’s a red flag. A house with cracks in the foundation, sagging ceilings, or sloping floors could be a very expensive problem to fix—if you can fix it at all.

A building inspection is non-negotiable when buying a fixer-upper; you should know just what you’re up against before you sign on the dotted line.

The layout isn’t what you want
While there are many things you’ll be able to change when renovating a fixer-upper, the floor plan isn’t always one of them. Unless you’re planning on a knock-down rebuild or an addition, you will likely have to work with the existing layout.

If the house is a 3-bed, 1-bath with a tiny closed-off kitchen, but you have your heart set on a 4-bed, 2 bath with an open plan, you might have to walk away.

You’re out of your depth
This is for people with big dreams but limited DIY skills. Be honest about what you’re planning to do yourself, and when you’re prepared to hire professionals.

Too many borrowers buying a fixer-upper first home get in over their heads very quickly by overestimating their abilities and underestimating the amount of work to be done.

If you’re a licensed builder, taking on a fixer-upper could be a total DIY project. However, if you’re inexperienced in home renovations, you might want to reconsider, or budget for a contractor.

This isn’t meant to discourage you from rolling up your sleeves and getting involved! Just be realistic about your projects.

The costs of renovations are too high
There’s often a correlation between the price of a fixer-upper and the scope of works to be done: the lower the price, the higher the cost of renovations.

Your budget will need to cover the purchase price of the home as well as the estimated cost of renovations. It should also include a buffer for any unforeseen costs, which can come fast and furious with renos.

If the projected cost of your remodel plus purchase price is higher than the cost of a turnkey property in the area, it’s probably not a great buy.

Buying a fixer-upper first home: what to look for

Picking the perfect fixer-upper first home isn’t just about avoiding problems. As with any home purchase, there are many factors to consider.

Your budget will work differently than it would with a turnkey home. There are two components to your fixer-upper budget: the property price and the projected cost of renovations. Make sure that the property price leaves enough room in your budget to cover the cost of renos.

Scope of works
Speaking of budgets, that brings us to the scope of works. A home with a long list of cosmetic repairs may seem overwhelming, but it could still cost less than one with a short list of major repairs.

Price out the scope of works and think about how much time they might take to complete. The number of projects isn’t as important as what actually needs to be done.

Time frame
Let’s talk more about the time frame for renovations, because this can affect your budget as well. If you’re not able to live in the house while renos are taking place, you might have to pay rent somewhere else.

If you can live in while the renovations are happening, it can save you money, but it can also be a strain on your lifestyle.

Take a step back and think about the location of your potential fixer-upper. Even if the project is tempting, will the finished product deliver the value you’re hoping for?

Location can help you answer that question. If you find a home in a desirable location, it can immediately influence the property value, meaning you might get more for your money when renos are complete.

Fixer-upper home loans

There are different types of home loans that can suit borrowers looking for a fixer-upper. The type of home loan you choose should suit your finances and house goals.

Here are a few to be aware of.

Confused about which type of home loan is best for you? Talk to a mortgage expert about your situation. A broker can help you identify the best types of home loans for you, and negotiate with lenders to find you a great deal on a fixer-upper.

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