Weighing A Fixer-Upper vs. A Turn-Key (Move-In Ready) Home
The idea of buying a fixer-upper can be both exciting and overwhelming. Some buyers cherish the opportunity to customize a home from the ground up, while others see the project as a daunting mountain of expensive decisions. The fact of the matter is, it’s both! There’s no shame in wanting to move in and call it home right off the bat, but building sweat-equity can also be worth the challenge, both financially and emotionally! Here’s my take:
The Case For A Fixer
One of the biggest reasons to buy a fixer is the instant equity. The price tag is often well below market (often up to 100k in some instances), giving you a chance to break into a competitive market, or one that’s above your price point in a more desirable neighborhood.
Fixers also offer creative freedom, within certain parameters. Through a process known as Value Engineering, open concept kitchens, spa-like bathrooms, creative storage solutions and more can be designed and implemented inexpensively to bring the home of your dreams into reality. Furthermore, a fixer-upper is a chance to create a space that suits your lifestyle, which is something you won’t get in a finished home that someone else designed.
Some buyers want a fixer-upper to build sweat equity quickly, and sell at a profit. Smart improvements in lighting, colors, spaces, plumbing and energy efficient items such as windows, doors and HVAC systems, could make the home’s value rise faster than it would for an average turn-key property. Identifying this kind of opportunity takes patience and knowing your market, but is definitely possible in the right locations.
The Case For A Turn-Key Property
While the upside (profit potential) to a fixer-upper is real, so are the challenges, headaches and budget overruns. Renovations can be more expensive and time-consuming than expected, especially in older homes, and surprises are not revealed until it’s too late. The process of opening walls, known as demo, will expose outdated electrical, oddly sized lumber, irregular plaster and lathe installations (very common in the early part of the century), and structural issues. These problems can drive up the budget and extend the timeline. Without proper preparation this can spell disaster for the first-time flipper.
Additionally, contractors can be difficult to wrangle, and acquiring permits can be somewhat difficult without the proper qualifications. Meanwhile, the house is torn-up which can be stressful especially if you are living there or there’s a sudden change in weather. A late spring snow storm, or a summer deluge, can quickly create an emergency situation if the roof is partially missing, or the windows haven’t been installed yet.
For these reasons, a move-in ready home offers convenience, piece of mind and relaxation from the start. You can unpack your boxes, settle in and enjoy the space without delay. If you work from home or have a large family, these considerations can be worth the higher price of a turn-key property.
Pros and Cons of Financing
If you are on the fence, financing can often make the difference. Homes in disrepair are harder to obtain traditional financing on, and may not qualify for a mortgage. So-called bridge loans, and hard-money lenders, can help provide quick cash, but often come with strings like short fuses and high interest. Turn-key properties are easier to finance but are more expensive which can reduce your down payment and require mortgage insurance.
Finally, fixer-uppers can offer big rewards if you’re prepared for the uncertainty that goes along with it, but turn-key properties have a different kind of reward, one that allows you to kick off your shoes and relax right away! In the end, the right choice depends on your budget, timeline, fortitude, and of course, imagination!
