Yes, my husband and I did it: We bought a fixer-upper, and it nearly did us in. It was Brooklyn, NY, in 2008. I remember walking to the place for the first time and seeing the back seat of a van on cinder blocks being used as a couch -- and quickly looked past that eyesore. This could be a great space once it was renovated, I thought. The light was great, the space ample and flexible, and its Park Slope neighborhood was about to bloom.
Six months into the renovations, our contractor told us: "In hindsight, we should have knocked this down and started from scratch. It would have been cheaper." Ah, blessed hindsight.
We wanted to keep you from getting sucked into a money pit of your own. For expert advice, we turned to Cathy Baumbusch, a Realtor in Washington, DC, who told us how to master the art of buying a fixer-upper.
1. Know that some flaws can be fixed
Fixer-uppers generally fall into two categories: total wreck and ugly house.
"An ugly house is not architecturally appealing: Its paint is chipping away, the yard is unkempt, inside it may smell bad," says Baumbusch. In short, everything about it needs freshening up.
But if these are the kinds of flaws you're dealing with, take heart: They're merely cosmetic, and they're easy to fix. Painting is the easiest task that you can do yourself. Just don't cut corners -- buy all the right equipment (use the tape!) and paint correctly, with the right number of coats. It's extra work, but it pays off in the end. Even if you hire a painter, it won't cost as much as redoing the bathroom. You could also refinish the floors yourself, although it involves renting a machine.
2. Then again, other flaws cost a bundle
On the other hand, some blemishes may initially slide under your radar -- but eventually make a big impression on your wallet.
"Problems with the foundation, structure, roofing, and siding can be expensive to fix," says Baumbusch -- as can major replacements with sewage, septic, and heating, ventilating, and air-conditioning systems. Replacing decks and driveways can also be costly. Sometimes environmental problems such as a wet basement or mold can be mitigated, but treatments are not always successful. In some houses, it can just be impossible to solve a bad mold problem.
"I once viewed a property for sale where the mold was so bad, it was difficult to breathe," says Baumbusch. "It was everywhere, and the property management company was doing nothing to stop it. That home would probably be better off completely gutted or razed altogether."
3. Ballpark your renovation costs
Hire a structural engineer to evaluate the home before you buy -- but before you even get there, do your research. There are a lot of repair estimators out there, so ask your friends and co-workers if they've done repairs lately and could tell you how much they cost. That way, you can quickly ascertain whether the repairs would fall within your budget. Draw up a reference sheet for renovation costs such as roof, foundation, HVAC, and windows. This will help you to determine a viable offer price.
4. Ask for a discount -- gently
Now on to the real upside of buying a fixer-upper: major savings! These houses can go for as little as 60% to 80% of the original asking price, says Baumbusch. This is especially true if the home has been sitting on the market for a while, or if you're able to offer cash upfront.
Of course, even if you and everyone within eyeball range know that this house is in shambles, that doesn't mean the sellers know that, or want to hear it. To avoid insulting them, start out by saying you love their home, but you (or your engineer, inspector, or friend) have noticed some issues that will take time and money to fix. Then subtract that sum from their asking price, and you don't have to stop there.
If the renovations will keep you from living (or living comfortably) in your home, it's also customary to tack on an extra fee for what Realtors call "the hassle factor," which can be estimated by the amount of time and money you'd spend living elsewhere while the renovations happen.
The bottom line: The more you break down your expenses, the more sense your offer will make to the sellers, who will hopefully play ball.
5. Get the right kind of loan
A home requiring major renovations can qualify for a special type of financing called a renovation loan. And there are different types: A 203(k) loan, recently rising in popularity, is insured by the Federal Housing Administration. Since these loans are backed by the government, lenders are fine accepting lower interest rates than what would be required by your typical home renovation loan; they're also open to people with less-than-stellar credit. The downside? There's a limit to how much you can borrow (anywhere from $271,000 to $729,750, depending on the price of property in your area). Be sure to explore all your options with your Realtor or other qualified experts.
In the case of our Brooklyn home, we transformed a disheveled hovel into a beautiful home. It took a very long time and a lot of money. It just might have been nice to know what we were actually getting into to try to avoid the panic that came with every change order.
So, if you're thinking about tackling a fixer-upper, trust me -- it helps to know what you're in for first.