A Guide To Buying Fixer Uppers As A First Home

Overview

To some people, buying a fixer-upper first home sounds adventurous: it’s like staring in your very own episode of House Hunters Renovation.

To others, a fixer-upper is their worst nightmare: what could possibly be appealing about buying a house that needs serious work?

In this guide, we’ll look at the pros and cons of buying a fixer-upper first home, and whether or not you should do it.

What is a fixer-upper?

A fixer-upper is a house that is in need of some TLC.

We're not talking a few coats of paint, but more like a kitchen remodel or new floors.

In many cases, it's still possible to live in a fixer-upper while you're working on it.

This way you can save money on the purchase price and move into your new home on settlement, as long as you don't mind its condition.

'Fixer-upper' is a pretty broad definition that can cover a range of things, from minor cosmetic work to serious structural repairs.

The concern many buyers have when buying a fixer-upper is that there might be more problems lurking beneath.

The reason these types of houses remain popular, however, is because of the appealing price tag.

When a house needs work, this is usually reflected in the price as not everyone is motivated to do the renovations, which is why saving money by buying a fixer upper first home can be so tempting.

Pros of buying a fixer-upper

There are plenty of positives about buying a fixer upper, from increasing the value of your home to getting a great deal on the purchase price.

Low purchase price

It costs money to fix up a house, so you'll usually be able to get a fixer-upper at a lower price.

Depending on how long the house has been on the market, you may also have more leverage to negotiate on price.

Competition for a fixer-upper isn't as stiff, and if the owner is motivated to sell, you could get a steal.

Increased property value

When you fix up a home in disrepair, you typically increase the home's value by at least the amount you put in to repair it.

The property value may increase even more thanks to your foresight: you've done what many other buyers weren't up for doing.

The investment of time and money can pay off in the long run, and you could end up selling the home for more than you put into it.

Sense of accomplishment

Achieving goals feels good, especially when they are daunting.

If you take on a fixer-upper and it goes well, you'll probably gain a sense of satisfaction from having accomplished your task.

What's more, your newfound confidence can be applied down the track, you may find that you have a knack for fixer-uppers!

Opportunity to customise

Even if you haven't snapped up your dream home, a fixer-upper presents you with the opportunity to make things look the way you want them.

If you've always dreamed of subway tiles and a colourful backsplash in the kitchen, now's the time.

If you're starting from scratch (or close to it), you might as well make it work to your advantage.

Cons of buying a fixer-upper

Even if a fixer-upper sounds like a great deal, it's important to weigh up the cons before moving ahead.

Time and effort

Fixing up a house takes time and effort, even if you're not doing any of the work yourself.

It may mean living in a house with some frustrating quirks, or spending your days off doing repairs.

A house under renovations doesn't quite feel like home, so you'll have to make peace with waiting for the end result and putting up with disarray in the meantime.

The unknown

You may find that there are far more repairs needed than you originally thought.

Sometimes structural issues, mould, or plumbing problems are not discovered until the work is underway, and you're stuck with making a very expensive decision.

Here are a few signs that everything might not be as it seems:

• Cracks in the foundation, floors, or brick walls could indicate problems with the home's structure.

• A saggy floor could be a sign that the foundation needs extra support.

• Tight doors and windows that are hard to open and close? This might be a sign of termites or foundation issues.

• Mud tunnels are also a telltale sign of termites. These are tubes of dried mud that can be seen on surrounding trees, bricks, or concrete.

• Discoloured, peeling, or bubbling paint can be a sign of water damage hidden behind ceilings or walls.

Build some fat into your renovation budget so if things do go awry, you're at least somewhat prepared.

Mounting costs

As renovation costs climb, that low purchase price may not seem like such a great deal anymore.

It's very common for fixer-uppers to go over budget due to unforeseen costs.

Stress

Renovating a house can be fraught with stress: you're tired, frustrated, and worried about money, plus trying to manage your normal life on top of it!

Many first home buyers are not prepared for the emotional toll of a fixer upper.

When is it a good idea to buy a fixer-upper?

At the end of the day, some fixer uppers are a good buy while others are little more than a money pit.

But how can you tell which is which?

Here are five signs you might be on to a good thing.

Great location

If the house is in a desirable area, that’s a good sign.

Check the property prices of recently sold homes in the area and compare them to the fixer-upper for a sense of what it could be worth.

Good bones

If a house has good bones, then it’s got an appealing layout.

Have you ever walked into a house that just didn’t make sense?

For example, families usually aren’t keen on houses with a master bedroom on a different level than the others.

A house with good bones is easier to work with, because you are less likely to be faced with structural changes.

Cosmetic changes

If you like everything except the decor, you might have an easy fixer-upper on your hands.

Cosmetic changes are usually the cheapest and easiest kinds of renovations to make.

All you have to do is see past that horrible wallpaper to the potential that lies beneath.

Attractive combination

A three- or four-bed, two-bath house is generally a more attractive combination for buyers than a two bedroom.

What’s more appealing: a house with one bedroom more than you’d hoped for or one bedroom less?

Manageable renovations

While it may not be possible to know everything that needs doing, listen to your gut on this one.

If the scope of the renovations seems like too much, it probably is.

The condition of the house can help you decide if it’s right for your experience level and budget.

Considerations when buying a fixer-upper first home

Now that you’ve looked at the pros and cons of a fixer-upper, here are three more factors to consider.

Get a building and pest inspection

It’s common for buyers to undergo a building and pest inspection on a property before purchase, but with a fixer upper you may want a more comprehensive report.

You may even wish to get a second opinion, just in case.

Can you get approval for the renovations?

Depending on the renovations you’re planning, you may need to gain council approval before you begin.

If you intend to make changes to plumbing or the electricity and gas supply, there’s a good chance you’ll need some level of approval first.

How long will it take?

Be realistic about the renovations you have in mind and how long they are likely to take.

Will you be able to get a builder or tradesman in the time frame you’re expecting?

Will you stay motivated enough to finish any DIY projects on schedule?

Comparing home loans for a fixer-upper

Buying a fixer-upper first home is within reach for many people who are prepared to do the legwork required.

Fortunately, there are additional home loan options designed for people buying a fixer-upper.

The options vary depending on your budget, the home, and your financial situation.

Here are four loan types to consider when shopping for a fixer-upper.

Construction loan: These are usually associated with new builds, but they can apply to renovations if you’re looking to add an extension or knock down the home.

Read up on construction loans in our comprehensive guide here.

Loan with a redraw facility: A redraw facility allows you to redraw extra funds you’ve put towards the mortgage, that can then be used for renovations.

This is good for borrowers who purchase their home but aren’t able to fix it up immediately; you can make extra repayments over time and redraw them when you’re ready to renovate.

Top up loan: Borrow extra money on top of your existing home loan that can be used specifically to renovate.

This saves you having to take out an extra loan and you may get a lower interest rate.

Line of credit loan: A line of credit loan takes advantage of the equity in your home. You can withdraw a set amount of funds from your home loan and use them for renovations.

If you’re looking for a fixer-upper, you may want to shop around for renovation or construction home loans, which can help you manage your finances.

Compare home loans to find one with the features you want at a competitive interest rate, so you’ll get great value now and in the future.

This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.

Anthony Stevenson, is the head of home loans at Compare Club. With over a decade of experience under his belt, Anthony is dedicated to helping individuals make informed decisions when choosing a home loan. Whether it's finding the best deals on your home loan or refinancing, Anthony has a wealth of knowledge in the space.

Meet our home loans expert, Anthony Stevenson

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