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Fixer-Upper Tips for the First-Time Homebuyer
Each week after the theme song rolls to the popular hit show Fixer Upper, Joanna Gaines poses the same question to the audience, “Do you have the guts to take on a fixer-upper?” She’s right, taking on a fixer-upper does take a fair amount of guts. But perhaps more than guts, taking on a home for a project takes knowledge. This is especially true if you’re a first-time homebuyer.
Buying a home that needs a little work has long been a way that first-time buyers break into the housing market. And while there can be plenty of monetary incentive for doing so, there can also be risk. Here are some things you should know before you get started.
Finding a Fixer-Upper and Deciding What to Pay
Real estate agents have a keen understanding of what homes will be ripe for fixing, versus which ones you may want to pass on, so it’s important to use the expertise they offer. They also specialize in knowing property values (home sales in Plymouth have averaged $240,000 over the last month). Once you decide on a home you’re interested in, be sure your agent presents you with neighborhood comparables, or comps, to see what the home is worth.
How to Decide What Price to Offer
After you’ve used the comps to determine if the seller is offering their property at a reasonable price, you have your starting figure. If they have the home listed well above neighborhood comps, work with your realtor to determine a reasonable asking price. Some sellers have already worked to adjust their pricing for the required repairs. Bring in a general contractor and a home inspector to help you assess what will need repairing and how much it will cost. You’ll take this estimated cost and subtract it from the comparable price you received. Then, subtract another 10 to 15 percent for hidden costs such as pest or uncovered structural damage. This will determine your offer price. Don’t be afraid to ask for a little discount.
Financing the Home
Depending on the level of renovations required, you may qualify for a renovation loan. These types of loans frequently offer lower interest rates and are extended to borrowers with less-than-stellar credit history. Make sure to ask your realtor about your financing options.
What to Leave to the Experts
Your general contractor should work with you to determine what projects are best left to the professionals, versus what projects you can take on yourself. Too often, first-time flippers take on more than they’re skilled to accomplish. Be sure to avoid things such as roofing, structural work, plumbing, demolition, room additions, tree removal, and electrical work.
What Projects You Can DIY
There are plenty of home renovations you can consider doing yourself such as painting, tiling the floor, landscaping, upgrading your curb appeal, adding crown molding, and dozens of other cosmetic changes that will add a lot of value to your new home.
Gearing Up for the Job
In all likelihood, your projects will require some gear that you may not have. Make a list of the projects you’ve decided to do yourself, research the best way to tackle the job and make a list of tools you’ll need to complete the work. Commonly needed tools include drills, sanders, jigsaws, a cordless screwdriver, safety glasses, and a toolbelt.
Don’t Over Renovate
A common mistake with first-time homebuyers and flippers is over-renovating. If your renovations take your home cost to $400,000 in a neighborhood where the median price is $300,000, you won’t be able to recoup your expenses. Your renovation prices should put your home’s total cost at no higher than 10 to 15 percent above the neighborhood’s median price.
Now you’ve got the knowledge part down. So do you have the guts to take on a fixer-upper? With a little help from a real estate expert, a general contractor, and a home inspector, there’s no reason why you can’t be just like Joanna Gaines.
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