So You Want to Buy a Fixer-Upper?

Buying a fixer-upper

Angela Stathopoulos, an avid cook, created her dream kitchen during a remodel of the condo she bought in the Lakeview neighborhood a little more than a year ago. (Michael Tercha, Chicago Tribune / April 16, 2014)

The one-bedroom, one-bath condominium in Chicago’s Lakeview neighborhood was an eyesore at best, a needy property begging to be brought into the 21st century. Daunting electrical and plumbing updates would be required.
But home-hunter Angela Stathopoulos was undeterred.
“Of all the properties that I looked at, this was probably the one that was in the worst condition,” she said. So bad, in fact, that her real estate broker had doubts. “She just kept saying, ‘Are you sure about this?'” Stathopoulos recalled.
Stathopoulos was not only sure, she had already developed a vision for the space, which she bought in March 2013 and finished renovating six months later. Its roomy layout easily could be converted into a two-bedroom, two-bath condo, increasing its value immediately. An avid cook, she also saw potential to carve out her dream kitchen.
For many homebuyers, the decision to buy a fixer-upper is the million-dollar question. But for Stathopoulos, a veteran of multiple renovations who admits she has a flair for finding hidden gems, the answer was easy.
Here, experts weigh in with tips to help you decide.
Reasons to go for it.
You are picky about home design. “A fixer-upper is a great way to get the house of your dreams through a renovation,” said Drew Scott, who along with brother Jonathan Scott guides buyers as they scout, buy and renovate homes on their HGTV show, “Property Brothers.” The Scotts said high home prices in many areas, including Chicago, mean buyers are unlikely to find exactly what they want at a price they can afford unless they create it themselves.
Pining for a kitchen with glazed Italian cabinetry, turquoise backsplash tiles and a butcher-block countertop? If your home wish list is hyperspecific, buying a fixer-upper may be one way to satisfy it.
You are set on buying in a specific neighborhood. If your home search is confined to a small geographic area, say a two-block radius in Bucktown or a certain tony neighborhood in the suburbs, be prepared to work with whatever comes available. In certain high-demand areas, potential buyers realize available homes are likely to need fixing, said James Votanek, a broker with @properties. “They will have their contractors lined up and ready to go,” he said.
You have home-improvement skills. Virtually anyone can paint walls, repair plaster or spiff up a property by cleaning. You get extra points if you have the skills to tile a floor or do carpentry work.
Another option for getting the job done, said Stuart Leland Rider, a Scottsdale, Ariz.-based former real estate developer and author of “The Complete Idiot’s Guide to Investing in Fixer-Uppers,” is offering to swap favors with a friend who has plumbing or electrical experience.
You intend to stay put. Buyers with a long time frame have years to make repairs and see value increase. “If you are planning to stay for 30 years, you have all the time in the world to learn how to tile a room,” Rider said. Five years should be the absolute minimum, he added.
You understand your financing options. When it comes time to pay, several financing options exist, each geared at different types of buyers and situations. A qualified mortgage broker can guide you through the choices, suggested John Poast, senior vice president of residential lending with Key Mortgage Services.
One of the simplest, for small projects, may be using a line of credit that many big-box home improvement stores offer. For slightly larger-scale projects, Fannie Mae’s HomePath Renovation Mortgage allows buyers to purchase properties needing light to moderate renovation. One loan amount includes both the funds for the purchase and renovation, which can be up to 35 percent of the completed value, but no more than $35,000, Poast said.
The needed repairs are superficial. The ideal fixer-upper? It might be a property that is generally well cared for, but hasn’t seen new cabinets or flooring since Carter left office. These types of homes are special favorites on “The Property Brothers,” where changes typically leave the footprint of the home intact. Instead, renovations usually involve moving interior walls and updating finishes and fixtures.
Reasons to reconsider.
You don’t know your limits. Even projects that conventional wisdom says anyone can perform — do-it-yourself demolition, for example — can quickly go bad in the wrong hands. “You can’t just start breaking things apart if you don’t know how systems work,” said Hiral Patel, director of marketing for Chicago-based 123 Remodeling. Patel has seen plumbing destroyed by overzealous homeowners with sledgehammers. Instead of increasing value, poorly done repairs can actually subtract from it.
The numbers don’t add up. In construction parlance, it’s called the “break point,” the point at which proposed changes cross a fine line and the cost increases beyond what’s reasonable. Rehabbers must take care to make sure that renovations plus purchase price don’t exceed the cost of a market-value home in good condition, experts agreed.
Kurt Mitenbuler, a property inspector who’s checked out more than 12,000 homes in his career, said structural changes to interior walls or the need to change a roof line are examples of repairs that might not make financial sense. A qualified contractor, property inspector or both working in tandem, can assess the property before purchase to provide a cost estimate of needed repairs.
You don’t want to spend free time on home repairs. If your idea of weekend fun doesn’t involve trips to the tile store or selecting bathroom paint colors, you might want to forgo a fixer-upper. Even if they don’t do the work themselves, those who succeed with a fixer-upper usually have a passion for all things home-related, Votanek said, and are willing to invest their free time accordingly.
You or your relationships can’t withstand the stress. Make no mistake, rehabbing a fixer-upper is an intensive, all-consuming process that is likely to add pressure to any life. “You have to be able to accept various challenges of construction and think quick to provide solutions to the contractor,” Patel said. “A no-fear mindset is important.”
If you behave badly when you are stressed, a fixer-upper may not be for you. “I’ve seen people almost get divorced,” Mitenbuler said.
This story originally appeared on on April 27, 2014.