Updated: Feb 8, 2022
The home values seem to increase each year. In fact, regional statistics report an increase of 19.5% year to date! Interest rates remain low, though expected to rise 1/4-1/2% per quarter in 2022 so it remains a crazy sellers' market. Thus, we see buyers looking at options they would normally pass on, like considering a fixer for their next home.
Although, normally less competitive, there are still multiple offer bidding wars occurring for these lower priced properties with buyers competing with investors looking for their next project. Before you jump into the fixer pool, please consider the following:
1. You may want to bring a contractor with you as you tour the home. He or she can help you determine what repairs might be necessary or how much they might cost.
2. Do your inspections. There may very well be issues lurking below the surface (mold, dry-rot, termites) and although home, pest, roof inspectors do not have X-Ray vision, they can certainly report many items destroying the home that to the untrained eye could be missed.
3. You may need alternative financing. Cash remains king, yet many buyers still require financing to help with the purchase. Unfortunately, your typical conventional and FHA loan may not work when there are obvious issues the lender would call out to be rectified before close of escrow. Talk with your lender about alternatives, including bridge financing, FHA 203(k) and others. When a home is in disrepair, you might face challenges with your appraisal. This is especially true if you’re using an FHA, USDA or VA loan, as properties must meet strict requirements with these programs.
4. Alternative residence. Few people really grasp how long remodeling can take. Not only are the contractors and their subs crazy busy, but the delay in materials has risen substantially, mostly due to COVID-19-related reasons. For serious repairs you may need to live off-site.
5. Flip or Hold? When buying a fixer-upper, do you plan to fix and flip it or fix it and hold it for a rental? Will it be your primary residence? Take these things into consideration when running your numbers and looking at the types of materials you decide to use.