Pros & Cons of Investing in Fixer Upper Houses
Fixer upper houses, or “fixer uppers”, are houses that need to undergo changes, renovation, or rehabilitation works before they can be rented or sold out: a fixer upper requires little, considerable, or much rehabilitation to make it more sellable or rentable for any desired purpose.
The amount of rehabilitation work or repairs that need to be carried out on a fixer upper may range from light to massive renovations on plumbing, electrical, roof, foundation, or any other aspects or parts of a house or building.
Is it advisable to go for fixer uppers if you’re interested in investing in real estate? You might be wondering whether you should invest in fixer uppers if you decide to venture into rental properties. The truth of the matter is that investing in fixer upper houses has its pros and cons.
Fixer upper houses can attract recurring dividends or tons of money after you fix them; on the other hand, they can also attract an appreciable or high degree of risk which can make you earn lesser ROI or lose money if you don’t play your cards right.
Now let’s take a look at the following pros and cons of investing in fixer upper houses:
The Pros of investing in fixer upper houses
1. Fixer upper houses can be fixed to appreciate in value and attract greater returns or cash flow
Fixer upper properties build immediate equity and always tend to gain value over time. It’s possible to shorten the time in which you can make immediate equity; you can do this by making some immediate changes in any fixer upper, thus raising their value and making dividends from the resulting appreciation due to the effected changes.
Because the nature of fixer uppers makes it easier for investors to buy them at far less rates than other properties, fixer uppers can attract greater returns or cash flow.
2. Fixer upper houses attract less competition
Most real estate investors don’t like investing in houses that have problems, especially many problems that fixer uppers usually have: most investors would rather invest in houses that are easy to handle and sell or rent out. As a result, there is less competition for investment in fixer uppers because the majority of investors simply don’t want to get involved in doing the necessary work required to fix fixer uppers and make them look better or offer better service(s).
3. Fixer upper houses can be fixed by using various financing options
The nature of fixer upper houses makes them open to many financing options or ideas; in fact, you could invest in fixer uppers in ways that would enable you to make money by investing little of your own cash. You could make use of financial options such as conventional loans, portfolio lenders, and private lenders; on the other hand, you could make use of financial creative ideas such as home equity, partnerships, seller financing, and house hacking.
The cons of investing in fixer upper houses
1. Fixer upper houses can be stressful to fix
It’s not always easy to rehabilitate a house that has a lot of problems or needs appreciable or lots of repairs. It can be stressful to deal with the drama associated with renovating or rehabbing fixer uppers: a lot of frustration could be involved when an investor is looking for different types of workers, hiring out work, chasing after contractors who miss deadlines or show up late for renovation works, etc.
2. Fixer upper houses can attract unexpected, unforeseen, or hidden expenses
Generally speaking, it isn’t easy for new investors to accurately estimate the amount of money they would need to fix or rehabilitate a fixer upper, because, when undertaking various aspects of rehabilitation works on fixer uppers, the more a wall, roof, floor, or any other covering is unveiled, the more likely one would come across other things that may need to be fixed.
For example, if an investor decides to replace old cabinets with new cabinets, they may suddenly realize that they need to also replace electrical works in the wall behind the cabinets, or repaint the wall behind the cabinets, etc.
Because of these reasons and many more, renovation works on fixer upper houses may require more money than an investor had initially planned to spend, and the duration for renovation may end up becoming longer than it was initially estimated.