Even during the pandemic, home prices have increased at a rapid rate. If you\u2019re in the market for a house, you may be considering fixer uppers to save money. But it may surprise you to learn that renovating an outdated home isn\u2019t always cheaper than buying a turnkey property. If your remodel goes over budget, you may end up paying as much or more than it would\u2019ve cost to buy a fully done home. So should you buy a fixer upper or move in ready property?<\/p>\n
There are still advantages to buying and renovating a fixer, like being able to choose all the finishes yourself. To help you decide if buy a fixer upper or move in ready home, here are the pros, cons, and costs associated with both types of properties.<\/p>\n
One of the major reasons home buyers purchase fixer uppers is because they want to save money. But what\u2019s really cheaper, to buy a fixer upper or move in ready home?<\/p>\n
Fixer uppers sell for an average of 8% less than market value, so you could get a great deal on the purchase price. But you\u2019ll have to factor in the cost of renovations to determine if you should buy a fixer upper or move in ready home.<\/p>\n
Before you make an offer, figure out how much work the home you\u2019re interested in will need and what it will cost to complete it. Get quotes from contractors or calculate the price of materials if you plan on doing the work yourself. Make sure to include some extra money in your budget in case there are any unforeseen expenses. <\/p>\n
You should also look at comparables in the neighborhood to get a sense of how much the home could sell for after improvements. Ideally your home will be worth more than what you paid to buy and renovate it once all the work is done. Generally, homes that only need cosmetic improvements are easier to turn a profit on than houses that require structural changes.<\/p>\n
Even if you do your homework, there\u2019s still a chance your renovation could cost more than expected. So at the end of the day, you might not save any money if you buy a fixer upper or move in ready home.<\/p>\n
According to a recent study, most buyers who purchased fixer uppers spent about as much after renovations as people who bought turnkey homes. So make sure saving money isn\u2019t your only reason for buying a house that needs work.<\/p>\n
Since property taxes are based on the purchase price of your home, you\u2019ll pay less if you buy a fixer upper than a more expensive turnkey house. You may also get tax credits if you make energy-efficient upgrades during the renovation. Even improvements that don\u2019t qualify for a tax credit will increase your home\u2019s cost basis, which means you\u2019ll pay less capital gains tax when you sell your property.<\/p>\n
Another benefit of buying a fixer upper is that you\u2019ll be able to renovate the home to match your design style. You\u2019ll be able to choose all the finishes and customize the look of your home, which you don\u2019t get to do with a turnkey property.<\/p>\n
Renovations are time-consuming and stressful. The average remodel takes four to eight months, so your home will be a construction zone for the better part of a year. If you don\u2019t want to deal with the hassle of managing contractors and living in a half-finished house, you may be better off buying a turnkey home.<\/p>\n
Turnkey homes can easily be financed with a traditional mortgage. But getting a loan for a fixer upper is usually more difficult. Some banks won\u2019t mortgage a home that needs extensive repairs, so your loan options may be limited. <\/p>\n
You\u2019ll also have to find a way to finance the renovation if you can\u2019t pay for it out of pocket. Although you can get a rehab loan to roll the cost of improvements into your mortgage, your lender may not allow you to do the remodel yourself. <\/p>\n
If you plan on doing things yourself to cut costs, you may have to get a personal loan on top of your mortgage. Sadly, personal loans usually have higher interest rates than home loans. Having to secure two loans instead of one will also make the financing process more complicated and time-consuming, which is another thing to keep in mind.<\/p>\n
One of the best things about buying a turnkey house is that you can move in right away and start enjoying your new life as a homeowner. The biggest project you\u2019ll have is unpacking your boxes and maybe painting a room or two. Although move-in ready homes cost more than fixer uppers, they\u2019re a lot more convenient, so the extra expense may be worth it.<\/p>\n
Move-in ready homes are easier to budget for because you won\u2019t have to account for the cost of remodelling. Although you can get a renovation estimate before you purchase a fixer, there\u2019s always a chance that you\u2019ll spend more than expected. About 30% of renovations go over budget, which can throw a wrench in your finances.<\/p>\n
Even if a home is turnkey, it might not look exactly the way you want. You may not like the color of granite in the kitchen or the tile in the bathrooms. Because you paid more for the home, you probably won\u2019t be able to make any changes for at least a few years. If you want some wiggle room in your budget for cosmetic upgrades, it may be better to purchase a fixer.<\/p>\n
Before you look at fixer upper homes, you need to know whether you can actually afford to own one. Mortgage payments are generally higher than rent in most states. And even when the prices are close, there are other costs associated with owning your home instead of renting.<\/p>\n
Your property taxes will be added to your monthly mortgage payment. And if you put down less than 20% for a down payment, your lender will probably require you to pay for private mortgage insurance (PMI) as well.<\/p>\n
You\u2019ll also have to pay some costs that you might not have had to pay while renting: utilities, cable, garbage pickup, and any necessary repairs.<\/p>\n
Make sure you can comfortably afford not just your mortgage but also any additional expenses before buying your first home.<\/p>\n
If you\u2019ve run the numbers and decided that yes, you can afford homeownership, your next step is to meet with a mortgage lender. You can discuss the different types of mortgages and decide which would be best for you. You\u2019ll also want to be pre-approved for a mortgage before you begin house-hunting.<\/p>\n
To get pre-approved for a mortgage, you\u2019ll have to share your financial and employment information with the lender. They\u2019ll require documentation such as tax forms, pay stubs, and more. Once they review and verify your information, they\u2019ll determine whether to approve you for a mortgage. If they do, they\u2019ll let you know your mortgage options and terms.<\/p>\n
The lender will also issue a pre-approval letter. You can show this to sellers when you\u2019re looking at homes, to let them know that you\u2019re able to secure financing.<\/p>\n
It\u2019s more than likely that the seller will come back to you with a counteroffer for their fixer upper. That\u2019s just part of the negotiations. It\u2019s up to you whether you can comfortably accept their counter, respond with your own counteroffer, or walk away.<\/p>\n
Keep your finances in mind and don\u2019t let yourself get carried away in the excitement of buying your first home. No matter how much you might think a house is perfect for you, if you can\u2019t comfortably afford it, it\u2019s time to think twice.<\/p>\n
Remember buyers: you need to know what a home will require in order for it to be up to your expectations of build quality. Houses may need a few things fixed either prior to purchasing a home or immediately after. It\u2019s important to be aware of these issues, as it may cause a headache further down the road after you\u2019ve purchased the house.<\/p>\n
Often, if the seller is motivated enough to sell the house, they might work with you and include fixes and light renovations as a stipulation in the contract for the sale of the house. Making sure you have inspectors and independent contractors to inspect the house for any major issues can help save you a headache in the long run.<\/p>\n
You also need to be aware of the market surrounding the house. If you look around at the neighborhoods close to the home you\u2019re considering, you may find other locations that may be a better price, closer to an important location, or simply newer than the one that you\u2019re considering. Ensuring that you\u2019re aware of the area and not focused on one house can help make sure that you\u2019re making the best choice possible when putting in an offer, and not necessarily choosing the first one on the list.<\/p>\n
Ensure you don\u2019t bid either too high or too low on the house. Bidding too high will probably get you the house quicker, but you may end up paying over market value for the home and will probably have to recoup that cost before you can be in a suitable position to generate equity into the home.<\/p>\n
Offer too little and the buyer may outright refuse and will greatly decrease your chances of landing the home that you want to purchase. When in doubt, consult a professional Realtor who knows the market.<\/p>\n
A Note On Commission<\/p>\n
Real estate agent commission, for fixer uppers or any other type of home, is typically split 50\/50 between the agents who represent the buyer and seller. So, out of a gross 6% commission, your agent would only typically get 3% gross.<\/p>\n
Out of that 3%, the agent has to split with their office. This generally ranges from a 50\/50 to as high as a 90\/10 split. So, on average the actual agent may only get 1.5% of that 6% commission.<\/p>\n
Remember, everything is negotiable in real estate. Don\u2019t discount using a Realtor because you think you must pay 6% to 10% in commissions. Agents may negotiate lower rates depending on the type of transaction, the services required, and frequency of business.<\/p>\n
For example, if you are a real estate investor selling and buying 10 homes a month, an agent might be willing to work a 50% off deal in exchange for the volume. If they are receiving a referral from a trusted source they may offer a modest discount, while still giving a full-service experience. If you don\u2019t need the agent to host open houses, and they can secure a buyer directly, without having to split with another agent, then they may offer a discount relative to their savings.<\/p>\n
Home sellers may also work with their agents on bonuses and incentives. These may be paid by the seller, or out of the listing agent\u2019s commission. For example, offering a $10,000 bonus for a full price offer which closes within 30 days, or contributing 3% of the purchase price toward buyer\u2019s closing costs.<\/p>\n
Should you buy a fixer upper or move in ready home? It depends on your lifestyle and priorities.<\/p>\n
If you don\u2019t have a lot of time to devote to a renovation and can afford to pay a little more for a home, you may be better off buying a turnkey property. But if you enjoy putting sweat equity into your home and want to customize it to suit your design style, a fixer upper may be right for you. <\/p>\n
If you\u2019re mainly hoping to save money by purchasing a fixer, you should research the cost of homes in your area before making a final decision. Studies have shown that in some markets, fixer uppers aren\u2019t significantly cheaper than move-in ready homes. In Phoenix, for example, you\u2019ll only save an average of $1,000 by purchasing a home that needs work. <\/p>\n
But in high-cost markets like San Francisco, you could save up to 10% by choosing a home that needs some TLC. That will give you as much as $50,000 in savings to renovate your home, which will help you turn it into the place you\u2019ve been dreaming about. <\/p>\n
Still on the fence about whether to buy a fixer upper or move in ready home? A qualified real estate agent can help you decide whether you should buy a fixer upper or a move-in ready home. You can start comparing real estate agents today on UpNest, which is a platform that connects you with top 5% agents in your area.<\/p>\n
Remember that your Realtor should be there to aid in your home buying process, not just to show you listings. Helping you avoid the wrong time to buy, the wrong location or the wrong house for your budget can all go a long, long way in making sure that you\u2019re happy with the end result. Beyond that, realtors aren\u2019t all the same, and you will need to find one that gels with your interest as a home buyer before choosing to go the length of the field with them.<\/p>\n
UpNest, which is owned by parent company Realtor.com, uses a proprietary agent matching system that considers closed listings, location of listing, and other factors to provide the customer with 3-5 individual proposals. The proposal includes commission information, marketing techniques, a Q&A about the agents, local trends, reviews, and more. Once agents start using UpNest\u2019s platform, the matching system evaluates their performance with UpNest, including conversion rates and response time.<\/p>\n
Are move in ready homes more expensive?<\/p>\n
Fixer uppers are often cheaper to purchase, but have you factored in the renovation costs, including the time it will take to complete the work and move in? You won\u2019t have to pay for the labor expenses that come with building a house, which adds up quickly and can be more expensive than buyers initially anticipated.<\/p>\n
It\u2019s fairly self explanatory: Move in ready means that the home is in a condition which is acceptable for immediate occupancy. For example, the home should have working plumbing, appliances, sound roof, electricity, gas and locking doors and windows.<\/p>\n","protected":false},"excerpt":{"rendered":"
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