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Buying a fixer-upper is an exciting opportunity to create your dream home by reimagining one that's already full of history and charm into something unique to you. Fixer-uppers are homes that are bought with the intention of making some serious changes, and this is because they're most often older houses in great locations with "good bones" (also known as a sturdy foundation and structure) that are in dire need of updates. From new plumbing and a fresh paint job to some knocked-down walls and décor that's all your own, you can transform an older home into something that's truly unique.

woman painting home exterior
Credit: Guido Mieth / Getty Images

As you start looking into buying a fixer-upper, keep in mind that renovations are a lot of work and often costly. But with lots of prep—from hiring a realtor to factoring in potential unexpected costs—you can set an appropriate budget to find the right one for your home design goals.

Start Planning Before Buying

When you're ready to start looking for a potential renovation project, you might be wondering if you should explore the market on your own. Gilbert Garcia of Monumental Contractors suggests first connecting with a realtor and taking advantage of the fact that these professionals can recommend contractors and design firms in their networks. Moreover, realtors can help you navigate an increasingly competitive market. "If anyone is interested in getting any kind of property right now, they're also competing against investors and flippers—not just prospective buyers," Garcia says. "So a realtor is very helpful."

When it comes to finding the right contractors, Garcia suggests firms that use the design-build approach—a construction method in which designers, architects, and contractors are on the same team, so the homebuyer isn't stuck as a go-between among different companies with different contracts. This helps you keep your budget under control and prevents delays in communication and execution. An added bonus? This method allows you to plan for the future, even after you've moved in. "Let's say you know that you want to add a bathroom upstairs but can only afford to renovate your kitchen right now," Garcia says. "With the design-build approach, we can ensure the plumbing in the kitchen will work with the eventual upstairs bathroom so we won't have to tear things down again."

Set a Budget Right Away

Of course, real estate prices vary in each state and county, so your final budget really depends on what you're looking for and where you're looking for it. That being said, Garcia tells clients to work backward to find a general number. First, figure out how much your house will be worth once it's fixed—you can do that by asking for comps from your realtor or by hopping on Zillow yourself to see the prices of homes in your prospective neighborhood. Next, ask your contractor for an estimated price range for your renovation project. "If a client is going for a complete gut job from the inside, I tell them to expect to spend anywhere between $125,000-150,000 per level," Garcia says.

From there, you can analyze how much you'll need to spend to purchase the home, how much you'll need to renovate it, and how much the home will be worth after these investments. If those numbers work for you, then you're ready to get to work.

Consider the Most Expensive Renovations

While home design TV shows often focus on the more glamorous cosmetic aspects of fixer-upper projects, remember that a lot of your money needs to go into the "un-fun" parts of the renovation, as Rebecca Chambliss, founder of Curated Design, calls them. That refers to things like plumbing, foundational repairs, roof repairs, and electricity. "A complete inspection followed by estimates to repair or update the major systems has to come before any of the creative changes," Chambliss says. While cosmetic remodels can get expensive, too, those costs really depend on your own taste and design choices, so you have more options when it comes to price range.

Any renovations that involve the home's structure—whether that's working on the foundation or adding rooms and levels—will be pricey, Garcia says. Let's say you want to create a more open floor plan from an older home's compartmentalized layout. Contractors will need to remove a support wall (also called a load-bearing wall) without damaging the building's entire structure—that's not a cheap undertaking.

Prepare for Unexpected Costs

Unexpected costs are pretty inevitable when it comes to fixer-uppers, Garcia says. "My recommendation for clients is to develop a budget before you go into anything, then set aside five to ten percent of your budget just for unexpected costs and changes in the plan," he adds. So where might you end up spending some of this extra money? While your new home is being fully renovated, you'll need to live somewhere else for at least some of the time, which can mean simultaneously paying the rent or mortgage for your soon-to-be former home or covering the price of an Airbnb or hotel room. "Sometimes during construction, we'll take down a wall and find unexpected plumbing issues we need to fix, so projects run longer than expected," Garcia says. Not only are you now incorporating the price of additional plumbing, but you'll likely need to extend your stay at your current location.

The coronavirus pandemic has resulted in some unexpected price increases, too. "Lumber has gone up 300 percent in the last year," Garcia says. "If construction is starting months after our initial estimate since we had to wait for permits, the pricing of lumber now changes during that gap." Garcia also mentions that some of his clients needed to pause fixer-upper construction since they were sheltering in place at their current homes. Now that they're able to begin renovations, he needs to provide new project quotes due to material costs being 10-20 percent higher than they were just one year ago.

And you're not only paying for construction costs. Katie Ostreko of Quality Edge says that heating and cooling bills "can be a surprise" for lots of new owners of fixer-uppers. "That's often the case because the home might not be properly ventilated and insulated as is."

Look Out for Red Flags

Foundation issues can limit your contractor's ability to work on the structure, Garcia says, and reinforcing and repairing damaged foundations can be extremely costly. Those projects are more appropriate for developers, rather than your average homebuyers. "For a homebuyer, I would say to purchase a fixer-upper that has good foundations and good structure, but is dated and needs to be redone from the inside."

Less of a red flag and more of something to keep in mind? Consider only hunting for homes built in certain decades if you want to try and limit those unexpected costs. "Homes built before 1950 generally require more surprise plumbing and electrical work after opening the walls," Bill Samuel of Blue Ladder Development explains. While those older homes are beautiful, you might need to search elsewhere for the sake of staying within budget.

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