5 Questions to Ask Before Investing in a Fixer-Upper

by | BiggerPockets.com

So should you invest in a fixer-upper? Despite a few cons, I would say yes, you should definitely consider it because of the overwhelming pros. However, before you jump into your next project, ask yourself these five questions about the deal.

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5 Questions to Ask Before Investing in a Fixer-Upper

1. How bad is it?

There are many levels of severity when dealing with fixer-uppers. Some properties need just a few thousand dollars worth of paint, while others need a complete overhaul. As common sense would suggest, the less work a property needs, the less risk you’ll have that something will go wrong during the rehab.

At the same time, however, the less work a property needs, the more competition you’ll face. This is why I generally look for properties that appear to need a lot of work to the general public but that actually just need minor fixes. For example, homes that have a bad smell because of pets or cigarettes are a prime candidate for me, because smells are easy to rectify. An ugly exterior paint job or a bad roof are also fairly easy (if costly) to remedy, but they scare away more potential homeowners. So, before you buy a fixer-upper, I encourage you really look at the property and have an accurate estimate of what it’s going to take to fix it up. Don’t go into a fixer-upper blind.

fix-and-flip-tips

Related: The Homestyle Renovation Mortgage: How to Use it to Fund Fixer-Upper Houses

2. Is it worth it?

Let me ask you a question: Is it better to buy a house for $120,000 that needs $30,000 worth of repairs, or a house that is $150,000 that is 100% finished? With all other factors being equal, the finished house clearly has the advantage. However, many investors fail to comprehend this logic and instead think “fixer-upper” automatically means “great deal.” It doesn’t!

Often, the cost of rehabbing a project will negate any discount you might get. On the other hand, if you could get that same property for $90,000 and put $30,000 into it to make it worth $150,000, now we’re talking!

3. Do I have the time?

Whether you plan to do the work yourself or not, fixer-uppers take time! You have to be present at the property often to make sure the work is being finished correctly, or maybe you’ll end up having to do the work yourself. I have a friend who bought a fixer-upper triplex with plans to live in one unit and rent the other two out, but it took him three years to fix up the two other units and get them rented! While this friend may still have a great investment on his hands, he lost close to $40,000 in potential rent over those three years because he didn’t have time to handle a fixer-upper.

4. Do I have the skills?

Most people who are looking to get started with fixer-upper rental properties plan to do the work themselves. I actually encourage this, as long as the work is on a small scale. Being able to do your own rehab can save you a ton of money and can help you get a good feel for how long projects take so you can better manage the hiring out of those projects in the future. However, if this is your plan, do you really have the skills to take on the project? If not, see the next question in this list.

rehab-exit-strategy

Related: How I Bought a Fixer-Upper Fourplex for $1 Down: A BRRRR Case Study

5. Do I have the drive?

Or more importantly, do you have the mental skills and motivation needed to learn how to accomplish those projects? My first home was a fixer-upper, and I had never swung a hammer in my life! However, I picked up a book on home improvement and began learning on the job. I also called in a lot of favors from other people I knew and had them teach me how to do things. By the end of the project, I could install carpet, tile a bathroom, lay laminate wood flooring, solder copper pipes, and fix a leaky roof—not because I had the skill, but because I had the desire and motivation to learn.

By answering these five questions for every project you are about to take on, you can better decide whether it is the right path for you. Fixer-uppers can be a great way to supercharge your wealth creation, but they also present increased risk. Just be sure to do your due diligence on any fixer-upper you plan to buy and accurately account for the hurdles you might face. Then take action, and get a little dirty!

How do you decide if a fixer-upper is for you or not?

Leave your comments below!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

9 Comments

  1. tim boehm

    Excellent as usual Brandon! I came from the construction field, form plumbing, electrical, drywall, roofing, and learned from professionals. Also the investment in tools and the use of tools. A great tool can’t do a great job if the user doesn’t have the knowledge of how to take advantage of it. At 65 I have collected over a quarter million dollars of tools to help me get the job done faster and better. One of the great things today is U-tube, many professionals sharing their skills and knowledge with beginners in my day it had to be hands on learning.

  2. Wilson Churchill

    Major projects are a good way to buy at a discount, especially if no one else wants the property. I recently purchased a home that needs a total gut job. The outside needs very little though. Doing all of the demo, drywall, paint, fixtures, trim, flooring, leveling myself with a few friends will provide a great rate of return.

  3. Grant Shipman

    Thanks so much for writing! I’m currently searching for my first quadplex in the North Colorado area as a buy and hold. I’d like to keep things simple by not doing the brrrr technique, but at the same time being able to evaluate the option to flip it opens up more options for me. Perfect article for where I’m at! PS I just went pro yesterday as I’ve listened to A LOT of your webinars, and I’m working thru all the podcasts as fast as possible. I did the happy dance after going pro 😀

  4. John Murray

    I always purchase a fixer at a 20-30% discount do all my own work. 60-90 days later I have improved the value by about 30-40%. I spend about $100 per day in materials and parts. So for $6K to $9K and 300-400 hours of work makes me about $50K to $90K when I refinance. Then start all over again. Refinance in October, purchase in December seems to net the largest amount of profit. Timing seems to be essential in the BRRRR biz.

  5. Nicolaas W.

    This is awesome Brandon.
    I am actually excited to get a fixer because in my free time I help .my friends build and fix things at their own places so finally I will have something of my own to fix.
    Plus what guy doesnt want to have more tools!

  6. Not a fan of doing your own work. You are buying yourself a $25 per hour job, at best. Unless you are really good, the work will look mediocre. Sounds like some of the guys like doing the rehab, that is one thing. But if you are trying to make a living and growing your business, you cannot be out there all day swinging a hammer or a paint brush.

    Spend your time looking for properties, negotiating with sellers, talking with small community bankers, managing your rentals, researching the markets that you currently invest in or want to invest in, staying current on trends with employers and major developments, etc. etc.

    Use your brain, not your arms. Just sayin’

  7. A fixer-upper home may not be your first choice by the first glance—it would look boring, bland, unexciting, lifeless without any potential and at worse, may look like it would not be the right placed to raise a family or become your own personal space. However, a real estate investor has the marketing skills needed and the right creativity and imagination to see the potential of what was once thought as a stale and drab of a house.

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