So you need to invest in Fixer-Upper?? Despite some shortcomings, I would say, because of the overwhelming strengths you should definitely consider it. However, ask yourself these five questions about trading before moving on to your next project.
5 Questions to Ask Before Investing in Fixer-Upper
1. How bad is it?
When dealing with fixer uppers, there are many levels of severity. Some properties require thousands of dollars worth of paint, while others require a complete overhaul. As common sense suggests, the less work a property requires, the less risk that something will go wrong during rehab.
At the same time, however, the less work a property requires, the more competition you will face. That’s why I look for properties that seem to require a lot of work for the average person, but actually require minor modifications. For example, a house that smells bad because of pets or cigarettes is a good candidate for me because it’s easy to fix the smell. Ugly exterior painting jobs and bad roofs can be repaired fairly easily (if they cost money), but they scare potential homeowners. So before you buy a fixer upper, it’s a good idea to actually look at the property and get an accurate estimate of what you need to repair it. Do not enter the fixer upper blinds.
2. Is it worth it?
Let me ask you a question. Is it better to buy a $ 120,000 home that needs $ 30,000 worth of repairs, or a $ 150,000 home that is 100% complete? If all the other elements are equal, the finished house has obvious advantages. However, many investors do not understand this logic and instead think that “fixer upper” automatically means “big deal”. It’s not!
In many cases, the cost of rehabilitating a project will negate the discounts you may get. On the other hand, if you can get the same property for $ 90,000 and put $ 30,000 into it to get a value of $ 150,000, we’re talking now!
3. Do you have time?
Whether you intend to work for yourself or not, Fixer Upper will take time! You will need to be present at the property frequently to ensure that your work is done properly. Otherwise, you may have to do the work yourself. I have a friend who bought a Fixer Upper Triplex that lives in one unit and plans to rent two other units, but it took me three years to repair and rent the other two units! This friend may still be making a big investment, but he has lost nearly $ 40,000 in potential rent over the last three years because he didn’t have time to work with Fixer Upper.
4. Do you have skills?
Most people looking to start a fixer upper rental property plan to work on their own. As long as the work is small, I really encourage this. Being able to rehabilitate yourself can save you a lot of money and give you a better understanding of how long your projects will take, so you can better manage the adoption of those projects in the future. But if this is your plan, do you really have the skills to undertake the project? If not, see the next question in this list.
5. Do you have a drive?
Or, more importantly, do you have the mental skills and motivation needed to learn how to accomplish those projects? My first home was Fixer Upper, and I’ve never shook a hammer in my life! But I picked up a book about home improvement and started learning at work. I also received a lot of favor from other people I know and asked them to teach me how to do things. By the end of the project, we were able to lay carpets, tile bathrooms, lay laminated flooring, solder copper pipes, and repair leaked roofs. Not because I had the skills, but because I had the desire and motivation to learn.
By answering these five questions for every project you’re trying to run, you can better determine if that’s the right path for you. Fixer uppers are a great way to drive wealth creation, but they also increase risk. Be sure to do due diligence on the fixer upper you plan to purchase and explain exactly what hurdles you may face. Then take action and get a little dirty!
How do you determine if the fixer upper is right for you?
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