Move-In Ready Vs. Fixer-Upper: What to Buy?
Since 2020, property prices across major cities in all the regions of Canada have experienced sensational growths. Yet in spite of increasing prices, demand for housing has not declined. According to the Canadian Real Estate Association, homes sales achieved a peak of more than 656,000 properties sold in 2021.
Prices rose on the back of pent-up demand caused by the pandemic and nationwide lockdowns in 2020. Inter-provincial migration in many regions and shortfall in housing supply in those areas have also contributed to pushing prices skywards. This is why the prices of homes in Canada are forecast to increase by a further 9% in 2022.
This is bad news for you if you are looking to buy a home before the end of 2021 or next year. Many buyers who postponed their dream of buying a new home in hopes that prices would drop are realizing this may not happen any time soon. A few buyers, on the other hand, are looking to the apparently cheaper alternative of buying a fixer-upper home instead of a move-in ready one.
Is this something you should be considering too? What are the risks of buying a fixer-upper home and are those risks worth the potential benefits of buying such a property? What do you need to know to make an informed choice between a fixer-upper home and a move-in ready home? This post explains the factors to consider if you want to avoid costly mistakes.
The pros and cons of buying a fixer-upper
• The purchase price
A fixer-upper will naturally be more affordable than another home with the same floor plan if that other home has been completely fixed up. The higher sales price of a move-in ready home is the cost of the convenience of being able to move-in immediately.
At the same time, just because a fixer-upper is cheaper does not make it a good deal. You must calculate the cost of renovating the home and add this to the purchase price of the house before you can determine if the home is actually cheaper.
• Freedom to customize the home
Buying a fixer-upper lets you design the home in a way that completely reflects your taste. You have complete freedom to choose finishes and colors. Even better, it is very possible to fix up the home and the total cost of buying and renovating it will still add up to less than the sales price for a move-in ready home.
• You can build equity quickly
The equity you put into renovating a fixer-upper can translate right away to improvement in the value of the property. After buying a fixer-upper home below the market value and renovating it, you can turn around and sell it for a profit because of its increased value.
• It is riskier
You are never completely sure of what kinds of problems lie hidden inside the walls and floors of a fixer-upper home or how much they will cost to fix. This makes buying such a property very risky.
This is true even if you get a home inspection. In addition to not being able to tell the extent of the problems with the home, you cannot accurately predict the timeline for the renovation.
• Financing is challenging
Except if you have some money saved up, buying a fixer-upper is difficult. That is because most lenders will not loan you money to make the purchase, due to the inherently risky nature of buying such a building. This leaves you with fewer options for financing the home, such as a rehab loan or hard money lenders, and these are often more expensive.
• It can be a hassle
Renovating a fixer-upper home takes time. You may have to manage a lot of different subcontractors for the projects. If you choose to use a single contractor who will hire subcontractors, your costs will increase.
If you decide to do some of the work yourself, you will save money but you will have to invest a lot of time. Additionally, you may have to pay for temporary accommodations while working on the home.
Do you have what it takes to buy a fixer-upper?
Are you handy or skilled in any of the construction trades? Have you ever been directly involved in renovating a home? If you have been in a role where you had to hire a home contractor or oversee a group of subcontractors, you may be able to handle the hassles of renovating a fixer-upper. If not, you may be better off buying a move-in ready home.
Buying a fixer-upper is a great way to get the home and also pay less for it. But for that to happen, you should be aware of the common money pitfalls of buying a fixer-upper home. You must buy in a good location and look for the worst house in a good neighborhood. You should look out for signs of structural defects such as soil shifting, sloping ceilings, and uneven floors.