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Pros & Cons of Investing in a Fixer Upper

When it comes to purchasing homes in Waltham, MA, one of the popular and more cost-effective routes to take is investing in a fixer upper. A fixer upper is a home that needs either minor or significant rehabilitation before it can be used as intended. These types of properties are often purchased by those who have the intention of “flipping” the home. While fixer uppers save you money initially, they can also have risks and turn into a money pit rather than an investment. Before deciding on buying a fixer upper home, you should consider the pros and cons of this type of investment.

Pros

Less Competition

In the real estate market, finding a good, nice, and essentially “perfect” home can be tough since nearly every other buyer is looking for the same qualities. Homebuyers want to purchase a property that is move-in ready, not a project they have to work on before moving in. This is true for both single and multifamily properties as investors do not want to buy a liability. This is where fixer uppers become a popular path as you will be dealing with a sliver of the real estate market population. Instead of competing with 100 percent of the market you will only be dealing with about 10 percent of those who are willing to look at fixer upper homes.

Forced Appreciation

Appreciation is the concept that properties tend to gain value over time. With fixer uppers, you can change the period of the property’s appreciation. This can be done by the effect of the rehabilitation on the house. This is where the “investing” aspect of fixer uppers comes into play. Say you buy a fixer upper home for $262,000 that needs flooring, painting, foundation, and other expenses. This could run you an additional $40,000 dollars. You now have a home that has $302,000 invested into it, which could look bad. When it comes time to sell your Waltham, MA home, you could sell it at a much higher rate than what you initially purchased it as. You can then sell the $262,000 house for $432,000 or more, giving you a very good profit margin. The more you put into your fixer upper, the more you will potentially get in return.

Potentially More Cash Flow

As mentioned earlier, buying a fixer upper home allows you to buy a property for far less than other homes on the real estate market. If you purchase a home at full value, you will pay a mortgage that will constitute the full price of the home. This can diminish the amount of cash flow you have for other necessities of your life. However, with a fixer upper home, you will only be paying a mortgage for the property that you bought. Going back to the earlier example, you will have more cash flow as you will have a home worth $432,000 but only be paying the mortgage of the $262,000 you originally purchased. The same applies for those looking to rent out a home. You would rent it for what a $432,000 house would rent for but only be paying the mortgage of a $262,000 home.

Cons

Hidden Expenses

With fixer upper homes, you go in knowing that there will be some maintenance or rehabilitation that will need to be done. This is where preparation and planning come into play as you can plan the expenses you will need to have to form the home of your dream. However, when it comes to doing the work needed to spruce up the place, you may encounter more problems than you had originally thought there was. It is hard to accurately estimate the totally rehab cost of a project. You may find out that while redoing the kitchen the whole house needs new electrical work. When considering a fixer upper home, you should be prepared for any unexpected expenses to occur.

Stress

Home improvement projects, to some, can be peaceful getaways but for most they are stressful but necessary jobs that need to be done. From the first swing of the hammer to the final change of locks, the stress that can come from rehabbing a home can be overwhelming. If you plan to do the work yourself, then you will need to prepare for cuts, bruises and a lot of time and stress put into project. Outsourcing the work can be just as stressful as contractors will say one thing and do another, miss deadlines, and sometimes produce low quality work.

More Out-Of-Pocket Costs

Budgeting while rehabbing a home is difficult and can throw your analysis of the overall project out the window. This happens as you spend more money than intended as well as different aspects of the rehab taking longer than expected. Depending on your situation, you can go from an investment to a money pit.

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