Fixer Upper Home – What is The Real Cost?

Considering buying a home to fix up to call home or to flip? You can save a lot of money, or get yourself in big financial trouble.

1. Determine what work you can do yourself

The TV real estate shows make repairs and improvements of look easy and effortless. In the real world, trying a difficult remodeling job that you really don’t know how to do will take longer and cost more than you think. In the end it could turn into a huge loss and a real headache.

• Do you have the skills to do the work? Some of the work, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by non-professionals.
• Do you have the time and drive to do it and get it done? Can you take time off from your job to renovate your fixer upper house? Will you be stressed out by living in a construction zone for months while you complete the house?

2. Determine the cost of repairs and remodeling before you make the offer

• Get a home renovation contractor into the house to do a walk through with you so he can give you a written estimate on the work he is going to do. A contractor who specializes in may be your best bet.
• If you are going to do the work yourself, price the supplies and the tools you will need.
• Make sure you add on an additional 10% to 20% to cover unforeseen problems that will arise with these types of projects.

3. Double your check pricing on the structural workIf your project house needs structural work be sure to hire a structural engineer for cost of about $600 to inspect the property before you put in an offer so you can be sure you covered and budgeted for the total cost to repair the problems. If you make a mistake here you may find yourself sell to a companies.
Don't purchase a house that needs structural work unless:

• You know the problems can be fixed
• You are getting the house at a steep discount
• You have a binding written estimate with a contractor for the repairs

5. Confirm the cost of financing

Make sure you have enough money for your down payment, closing costs, and repairs without wiping out all of your savings.
If you’re planning to fund the repairs with a home improvement or home equity loan:

• Get pre-approved for financing before you make the offer.
• Make your offer contingent on getting both the purchase money loan and the renovation money loan.
• Consider using FHA’s 203(k) program, which is designed to help home owners who are purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans.

6. Calculate a fair purchase offer

Take the fair market value of the property (what it would be worth if it were in good condition and remodeled) and subtract the upgrade and repair costs. Example: Your target fixer upper house has a 1970s kitchen, nasty wallpaper, shag carpets, and window A/C units.

Your comparison house, in the same subdivision, sold last month for $180,000. That particular house had a newer kitchen, no wallpaper, had hardwood floors and has a central HVAC unit. The cost to remodel the kitchen, remove the wallpaper, install hardwood flooring and put in a central HVAC system is $40,000. Your bid for the house should be $140,000. Ask your realtor if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair.

7. Include inspection contingencies in your offer

Hire pros to do common inspections like:

• Home inspection. Make this mandatory in a fixer-upper house assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1960s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.
• Radon, lead-based paint, mold
• Septic and well – if the property is in a rural area
• Pest Inspection

Most inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you a credit at closing to pay for the repairs. The seller can also opt to back out of the transaction, as can you, if the inspection turns up something you don’t want to deal with. If that happens, this isn’t the right fixer upper project for you. Go back to the top of this list and start again.