Cost of a Fixer Upper

Don’t you love the social media memes poking fun at real estate reality television shows that highlight the young, loving couple that shares her occupation of sharpening colored pencils for a preschool while her partner works part time counting butterflies at a sanctuary. Meanwhile their budget to purchase a new house is $1.4 million. Similar are the renovation shows that give the false sense of reality of successfully flipping a house and earning $500,000. Although this concept may be tempting, it’s important to consider all the facts before paying cash and no contingencies on a mid century modern money pit.

You’ll need to take into consideration factors of resale-ability. The four ‘legs of the chair’ if you will on quickly selling a house include: location, condition, price, and time of year. Therefore, your first consideration is a location that will yield a high enough demand on resale. The current real estate market is your first challenge. Low inventory is continuing to cause frustration among home buyers. The current seller likely either knows this or has been coached on the importance of location as well. That being said, many times before we even open the door of the subject property, understand the value may be in the land/lot itself. We’ve seen this in highly desirable communities. Buyers cannot find their ideal house in the community they want. So they buy a delapidated house in a great neighborhood, tear the house down and build their dream home.

To make a ‘fixer-upper’ worth your while, you’ll need to make sure the ‘bones are good’ and there are no structural concerns. In previous articles, I’ve shared the importance in getting a property inspection and it is just as important in a ‘flip’ opportunity. Even though many of the cosmetic challenges may be replaced, it is worth the money to make sure the opportunity is a good investment. To ensure this ‘flip’ is profitable, you’ll likely need to perform much of the renovation yourself, limiting contract work to fields outside your scope of comfort. Unlike HGTV, there will be much more physical labor than picking backsplash, bathroom tile, and paint colors for this to be a profitable endeavor.

Once your work is complete and it’s time to list, competitive pricing of the house is crucial. General listing expenses include REALTOR® commissions, deed preparation, county transfer stamps and any requested allowance for buyer requested concessions/repairs. You’ll also need to contact your tax advisor on any other tax expenses since you will not be claiming the property as your primary residence. Consider what you paid for the investment, the contract work you hired, any ‘sweat equity’ you put into it, and your financial goal in the project.

On the ‘flip’ side, let’s entertain the option to purchase the house to renovate/remodel and occupy the property during the renovation. Perhaps you assume the house as your primary residence for five years or so. You can manage the completion of renovation projects over time. This not only allows you time to complete the project to your satisfaction but will space out the cost of the projects. As your needs change and the remodel is complete, you can sell after you enjoy the benefits of the remodel coupled with the equity you’ve earned along the way.

Until next week, love where you live. And if you don’t… contact your local REALTOR®.

Brian Haufe, 2022 MBOR President

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