If you’re interested in a fixer-upper type investment in the real estate market, then it is crucial for you to have a complete understanding of the different aspects of home renovation, its types, its costs, and how to find the balance between all the different factors in order to achieve a successful real estate investment.
So, with no further ado, let’s get started.
Fixer-Upper Real Estate
There are several types of investment strategies in the real estate world. One of those investment strategies is called a fixer-upper or a fix-and-flip property. This strategy involves buying a real estate property that is in a poor condition and/or requires renovation works in order to be back in an inhabitable state, fixing the property, and then selling it back at a higher market value for a margin of profit.
Typically, in the real estate market, fixer-uppers are not a very popular type of investment due to the amount of work and attention to details that they require from the real estate investor. Committing to a fixer-upper project requires the real estate investor to put in a lot of time, planning, and research towards his/her investment, as he/she would have to be involved in the entire process of renovating the real estate property and be on top of any issues that might arise, which is very common in home renovation projects.
Additionally, while fixer-uppers are typically considered short term investments, depending on the amount of renovation needed for the investment property, the home renovation process can take up several months and sometimes even years to finish.
Choosing a Fixer-Upper
Due to the amount of effort that will be invested in a fixer-upper property, it is usually advised that real estate investors put an equally important amount of time into choosing the right fixer-upper property for their investment. When choosing a home that needs renovation, real estate investors have to be able to determine the exact property that they’re willing to commit to and make sure that once the home renovation project starts, they will see it through until the end to assure that it will be a profitable investment.
There are a number of aspects that need to be taken into consideration when choosing a property for this type of investment:
Location: Just like any other type of real estate investment, choosing the right location for your upper-fixer is one of the first and most important steps to your investment. The location of the real estate property is one of the major factors that will affect the property’s value and determine the type of renovation that is best to be applied on the property.
Property Type: Different real estate investors typically have different tastes or preferences when it comes to the type of real estate properties that they prefer to work with. For a fixer-upper, you will have some control over the number of bedrooms/bathrooms in your choice of property, i.e., if you believe that a 4-bedroom house is a better choice for this location than a 3-bedroom house, then perhaps part of your renovation plan would be to remodel the house and add a fourth bedroom to it.
Condition: Another important aspect that is used to determine the quality of a fixer-upper property is its structural condition. Some properties might have severe problems that might not even be visible to the naked eye, and it is important that the real estate investor is aware of any such issues before he/she makes an offer on the property.
Related: 5 Tricks To Save On Fix-and-Flips
Most of the work involved in a fixer-upper real estate investment is related to the home renovation process. While home-renovation is not a process that is exclusive to investment properties, and many homebuyers purchase homes that needs renovation with the intention of moving into the house after renovating it, the process of planning for home renovation for a fixer-upper investment is very different from home renovation for owner-occupiers.
When planning for a home renovation, a real estate investor has to keep in mind that the main purpose of renovating the real estate property is to make a profit from selling it. Naturally, any real estate investor who is considering a fixer-upper has to keep in mind that the higher the home renovation costs are, the less profit they will make when selling the property. But, at the same time, a real estate investor will want to apply enough renovation works on the property to effectively increase its market value in order to make a higher profit. So, in order to find the balance when planning the costs vs. added value for your investment, you as a real estate investor would need to gather a good amount of information and knowledge on home renovation, its costs, and its types in order to be able to achieve their goals.
Types of Home Renovation
There are three major types of home renovation based on the condition of the property and the real estate investor’s plan and vision of what he/she wants the finished product to look like.
As the name suggests, cosmetic renovation is the most favorable type of home renovation for fixer-upper investments. This is due to the low costs of cosmetic renovations and the little time that needs to be invested in cosmetic additions.
Whether you’re repainting the house, replacing the carpets and curtains, changing the window frames, or adding antiques and new lights, these are all minor changes and additions that come at a low cost and require little time to implement.
While relatively low on cost, cosmetic renovations have a very wide range of options, and a real estate investor is free to choose the changes and additions that suit his/her taste or what he/she believes will be good selling points for the investment property, while also having control over the costs and types of renovations to invest more money into.
Remodeling renovations are changes that might affect the type of the property, the number of rooms in it, or the interior/exterior configuration of the house in general.
Removing or adding walls, doors, or windows, or a complete remodeling of a kitchen or a bathroom are slightly costly renovations that require careful planning before they are implemented as well as commitment.
Some remodeling projects are based on a central change in the property, so if during or after the renovation, the real estate investor changes his/her mind about any part of the change, he/she might be forced into redoing the entire remodeling.
The most expensive and least desirable type of home renovation that most real estate investors try to avoid is the structural renovation.
This type of renovation requires construction works and infrastructural changes to be made to the house to fix serious issues, to prevent them from happening, and/or to comply with the state’s safety laws and regulations.
Due to their high costs, most real estate investors wouldn’t consider a property which requires heavy structural renovation, as the costs of fixing the property might lead losing money rather than making money from the real estate investment.
If a real estate investor chooses to invest in a fixer-upper that needs structural renovation, it is usually a good idea to use the opportunity to do a remodeling of the property as well, as the structural renovation will already lead to turning the house into a construction site. It is important to choose the right time to start the remodeling process to make sure that the structural renovation will not get in the way or force the real estate investor to undo a remodeling that is getting in the way of construction works.
Inspection for Home Renovation
Before making an offer on a fixer-upper property, it is highly advisable to get the real estate property inspected first. Hiring a professional to do a property inspection might cost you an extra amount of cash, but it can also save you a lot of money, and might even save your investment altogether.
Some seemingly great fixer-upper properties might have hidden problems that you might not be able to discover on your own or until you’ve already bought the property and started your renovation works. This might lead to the real estate investor planning for a low-cost cosmetic fixer-upper only to discover structural issues that might cost several times the amount that he/she had planned for, causing the investor to lose money on the real estate investment.
If your state permits for a pre-purchase inspection, and if your contract includes a section that would allow you to cancel your purchase contract for a feasible reason, you should always get a home inspection. If the inspector discovers a problem that might cost money to repair, you might be able to negotiate the seller into paying the reparation costs, and you can sometimes ask the seller to cover the inspection costs as well.
Planning Your Renovation Costs
Another important factor for the success of your fixer-upper investment is related to the planning of renovation costs. Renovation costs can vary widely depending on the type of renovation, the scale of it, and the quality that you’re trying to add to the property.
In order to save money while still achieving the result that you’re looking for, you should have sufficient knowledge of home design, contractor works, the housing market you’re investing in, and a number of different factors that will affect your renovation choices and your priorities when it comes to costs and expenses.
Reading online blogs, articles, and guides, or visiting websites that tackle home remodeling and designs will only be adding value to your real estate investment plans and giving you more options to consider.
Save Money – Get Involved
If you’re serious about your real estate investment and are trying to save as much money as possible, you should be prepared to get your hands dirty and join the workforce on site. A large chunk of renovation costs go towards minor repairs and installations which can add up over time. In order to save on these costs, you might have to take matters into your own hands: skip on hiring a contractor and skip on hiring someone to install devices or paint the walls. If you can do it, or you can learn to do it on your own, then you should.
Last but not least, when talking about home renovation, one must at least mention the option of renovation loans. Renovation loans are loans that a real estate investor or a homebuyer can obtain in order to finance the purchase of a fixer-upper property or a home that needs renovation while also covering a portion of the renovation costs and expenses. This type of loan is specifically designed for such type of property purchase, and there are a number of different types of it designed for different types of investors or buyers in order to serve their needs.
Fixer-upper might not be the most popular, nor the most effortless type of real estate investment. It is, however, a very profitable real estate investment, and when planned correctly, the margin of error can be nonexistent, making such investments well worth the time and effort that is put into them.
In order for a real estate investor to plan around a fixer-upper property and turn it into a good investment, he/she is required to have a different set of knowledge than what is normally needed. The investor would have to get more involved in the investment throughout the entire process of home renovation in order to guarantee the end-result that is expected.
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