Is a fixer-upper worth the investment?

Not all fixer-uppers will return big dividends, but there are other reasons to consider buying one.

Perhaps a dream house mortgage is beyond your day job income. Not surprising, given that home prices have jumped 60% in the past decade (adjusting for inflation), according to Federal Reserve Economic Data. 

Even if you can’t afford that shiny new home today, there are plenty of existing houses on the market. And if you have an abundance of patience, some DIY skills and are willing to get your hands dirty — and your clothes, and hair — a fixer-upper house may get you more home for your little buck.

Outdated cabinetry and countertops are common in a fixer-upper.

What is a fixer-upper?

As the name implies, a fixer-upper is a house that needs some work done. Sometimes, it’s just cosmetic upgrades, such as new flooring and windows. Others require more serious repairs, such as updated plumbing or electrical work. Because the home is not in ideal condition, it’s generally sold for tens of thousands of dollars less than a move-in ready place.

When you’re looking at homes, think beyond the edifice itself. While you can upgrade everything in a house, you can’t change its location. So if the home is in a decaying neighborhood or is far away from conveniences, it might not be an ideal option if you’re planning to sell it for a profit.

Likewise, if it’s in an area where home prices are steady or increasing, or it’s close to stores and entertainment, it could be a wise investment. Choose a house in a spot that fits your lifestyle or those of potential buyers.

Why buy a fixer-upper?

A lower price is certainly a draw for buying a fixer-upper; everyone loves a bargain. But there are other perks, as well. Maybe you couldn’t afford to live in your desired neighborhood with a turnkey property, but a fixer-upper may be feasible. Because the home price is less, the required down payment will be smaller. And with a lower mortgage payment, you’ll have more free cash to pay for those renovations.

Create a budget for your project, including a contingency fund for problems that will inevitably crop up.

Custom home

With a fixer-upper, you can start with a blank canvas and design the home exactly how you want it. Swap out the oak cabinets for painted green ones; replace vinyl floors with wooden planks; paint the walls a bright indigo blue.

You can also control the quality of your renovations. You hire the contractors or perform the labor yourself, and you choose the materials. It will be as good as you make it.

And when you’re all done, the home’s value should increase and you should have more equity. That means ultimately, when you’re ready to sell, you may make a greater profit.

What are the drawbacks of a fixer-upper?

While a fixer-upper house may seem like a win-win investment, be warned: It can get expensive fast. Every repair, replacement and revamp has a price, which you’ll be paying out-of-pocket. Before jumping on board, consider the overall cost to be sure it won’t exceed your financial — or emotional — limit. 

Up all hours

Fixing up a house takes time. A lot of time. You may be spending countless hours working on your project: weeknights, weekends and holidays. Date night may turn into paint or rip-out-the-old-carpet night.

Working those long hours, along with spending large amounts of money, can put a strain on family relationships. Because someone didn’t tell the contractor that you specifically wanted the thermostat to be placed on the south wall of the kitchen. Regularly sit down and discuss your plans so everyone is on the same page.

If you consider painting a perfect date night, a fixer-upper could work for you.

The buck stops here

Even if you plan to hire contractors for each job, you’ll still need to manage the project, including hiring and communicating with those workers. You’ll also be responsible for choosing all the furnishings such as countertop materials and light fixtures.

Deadline schmedline

Should I buy a fixer-upper with a hard deadline in mind? Short answer, no. The project may be bigger than you anticipated, and working with a tight schedule will only cause more stress and possibly more expense. Outdated electrical wiring you hadn’t known about, mold under the bathroom tile, water damage in the attic — all kinds of issues can pop up, requiring more time than you’d planned.

Trying to finish before a baby is due? Or before your parents come to town? Probably better to start the renovations another time, when your schedule is flexible.

How much will it cost?

The national average cost to renovate a house is $52,000, or from $15 to $60 per square foot, depending on the room. Installing new cabinets, light fixtures and a sink in a kitchen will be much more expensive than simply painting and installing carpet in a living room. 

Before you start your project, get estimates from a few contractors so you have a realistic idea of what’s ahead. Also visit your local home improvement store to get an idea of material costs. Price out all the items you consider must-haves, such as a granite countertop. As you plan your budget, set aside an additional 5-10% for a contingency fund to cover problems you discover along the way.

Guesstimates could blow your renovation budget. Visit your local home improvement store to research material prices before committing to a project.

Match boxes

As you consider your upgrades, remember where you are. If you’re in an area with average home prices, it’s unwise to add loads of custom and expensive features. If you end up as the most expensive home on the block, it will be hard to recoup your investment. 

Labor gains

How much work are you willing to do on your own? Your budget may allow for hiring a contractor for the big stuff such as wiring and plumbing, but who will install the luxury vinyl planks? Are you willing to paint? What about installing wall trim or a kitchen backsplash? 

It’s perfectly fine to hire a pro to do the work, but services add up quickly. If you’re not willing to do much of the work yourself, you’ll likely lose out on the financial savings you were hoping for.

What makes a good fixer-upper?

Before making an offer on a house, get a home inspection. In Utah, it will cost you around $400, but it may give you invaluable information. A qualified inspector should thoroughly go over the property and can tell you about problems you may not have noticed in your excitement, such as cracked pipes. Then you can decide if the project is something you are ready to tackle.

More than just a pretty face

Your time and finances may be the biggest factors when choosing to buy a fixer-upper house; you want something that’s feasible for both. For most people, the best option would be a home with only cosmetic issues. Repainting, updating the exterior or replacing the flooring are relatively easy fixes. Also, they usually have a good rate of return because buyers notice what the house looks like.

It's never too early to start teaching your kids DIY skills; get the whole family involved in your renovation project. Doing most of the work yourself will mean a greater return on your investment.

If the home needs a major overhaul, such as gutting an outdated kitchen or replacing the roof, it will be much more expensive. As a result, if you’re trying to flip the home, you may not make much of your investment back.

Unless you have the knowledge to do the work yourself, you may want to avoid a fixer-upper house with structural damage. A cracked foundation, for example, could end up costing much more to repair than you’ll get in return.

How much should I pay for a fixer-upper?

Admittedly, it’s tough when home prices are at an all-time high, but you should aim to keep your mortgage payment less than 25% of your income. This should leave you with enough money to fund your projects. Use the mortgage calculator on KSL Homes to determine your payment.

How do I pay for renovations?

If you’re already saving for a down payment, you may not have any additional cash to start projects on a fixer-upper. There are government-sponsored financing options that will allow you to roll your renovation fund into the home mortgage, such as the FHA 203(k) and Fannie Mae HomeStyle Renovation loans. Talk to your loan officer about your options and eligibility.

Of course, you don’t necessarily need to pay for the entire home renovation in one go. Work on one room at a time, saving up so you can pay as you go.

Where do I begin?

If you have some experience and love DIY projects, a fixer-upper may be a good option — just be sure you have the money and motivation to finish. Search KSL Homes to find potential fixer-upper houses. You can narrow down your selection by price and ZIP code, along with other features you’re looking for.