In real estate parlance, a fixer-upper is an older home in need of some serious work. They’re the ones with ‘potential’ and ‘renovator’s delight’ in the listing title.
There are plenty of reasons why buying a fixer-upper has a lot of appeal. You may be able to buy it for under market value and add ‘sweat equity’ through your own hard work. Fixer-uppers also offer the chance to put your personal stamp on a property, which can be very satisfying if you plan to live there yourself.
As with anything, though, there’s a lot of looking to do before you leap. Renovations can easily take more time, money or both than you’d bargained for.
Here’s what you need to know before you make the decision.
1. Do the numbers stack up?
In simple terms, the aim in buying a ‘fixer-upper’ is to end up with a property that is worth more than you’ve paid for it. You want to know that the cost of the house plus the cost of any renovations will be less than it is eventually worth.
This is true even if you’re not trying to ‘flip’ or on-sell the property. A home you live in is still a valuable asset because you can borrow against the equity to make further investments. If you’ve spent more on the property and renovations than it is worth on the open market, you won’t have any equity to draw on.
Look at recently renovated homes in your neighbourhood. Comparable homes, of a similar size and with the same number of bedrooms and bathrooms, are the most accurate.
The equation you want to solve is this. Is [Price of property + cost of renovations] more or less than [cost of comparable renovated home]? If it’s more, think very carefully about whether you want to proceed.
2. Do you understand the real cost of the renovation?
Have you priced out how much the works will cost? Before you start, get a sense of how much a bathroom or kitchen of that size will cost, or how much you can expect to pay for square metre for flooring. If you aren’t doing the work yourself, ask for a ballpark quote from your local trades.
It’s important to include a 10% buffer zone for contingencies. Unforeseen costs always come up, and you don’t want to run out of money partway through the project.
3. Is the building sound?
A tired kitchen or bathroom is easy to replace. Termite damage to the foundations is not.
It’s always a good idea to get a building inspection before buying. For a fixer-upper, it’s crucial. You might uncover problems with the foundations or other structural issues that aren’t obvious from the outside.
A structural renovation can get very expensive, even running into the hundreds of thousands. If the location and land size are extraordinary, it may be worth it, but chances are you’re better off looking for something else.
4. Are there any council restrictions in play?
Before you plan a full renovation, check what the local council regulations say. Some councils won’t let you put an extension on, or change the facade, for example. And if the building is heritage listed, you’ll be further restricted as to what you can do.
You may also need permission from your council to remove any significant trees on the property. Sometimes, the species and/or size of the tree means that permission will be refused. If your plans rest on clearing some ground, check ahead of time.
5. Do you have the time to take on a fixer-upper?
Are you planning to spend your weekends polishing floorboards and repainting rooms? For buyers who plan to take on the project themselves, a fixer-upper can be a serious time commitment.
You can outsource the work for an extra cost. Even then, though, be prepared to spend plenty of your own time on the project. You’ll need to be on site to let trades in and direct people to do what you want, where you want it. You’ll need to be reachable to answer queries. You’ll need to attend showrooms, choose tiles and flooring and fixtures, and manage your calendar to coordinate delivery. Unless you’re prepared to pay for a project manager on top of the renovation, you should realistically assess your ability to take on this job.
6. Do you have somewhere else to stay?
Will you be buying the fixer-upper and staying in your old home while the renovations are done? If so, do you have the bridging finance in place to cover both mortgages until the new place is ready?
For minor renovations, you may be able to move in while the work is done. However, you’ll need to be prepared for a lot of noise, dirt and disruption. If you work from home, or you have kids, this may be more difficult than you anticipate. A short-term rental may be the solution, but make sure you factor it into your costs.
With the right planning, a fixer-upper can be intensely rewarding. There’s nothing quite like the satisfaction of stepping into a place that your own hard work and vision has created. Build in some buffers and do your due diligence, and your dream home might be just around the corner!