Fixer-upper or move-in ready? That’s the eternal question for homebuyers today. While timing may dictate your decision (move-in ready means right away!), remember that a fixer-upper comes with many benefits and can save money in the long run.
Here are few items to consider when making your decision:
More often than not, the initial cost of buying a fixer-upper will be less expensive than a new house. If you want to get an idea of long-term price tag – do your research! Take into account the market values of each target location and how much upgrades and repairs will cost. Veteran investors will tell you that equity is made at the buying closing table.
Here’s a great equation that will help decide on a fair purchase offer: add up the costs to renovate the property, including materials and labor; subtract that number from the home’s potential market value after renovation; then deduct at least another 10 – 25% of the anticipated renovation cost to account for unforeseen problems and mishaps that may occur. This total should be your maximum purchase price.
A big reason why people choose to buy a fixer-upper over a new property is to have more control over the look and design of the house. It’s basically a blank canvas…and you’re the artist. Since you want to be conscious of your budget for renovations, it’s important to focus on structural improvements before cosmetic renovations (e.g. drywall repairs, refinishing floors). Once the ugly stuff you can’t see is squared away, you can focus on the fun stuff like the kitchen and bathroom upgrades, installation of new lighting fixtures, and whatever else your heart desires. Keep in mind that you want to add value to your home so that, when the time comes to sell, money is going in your wallet. If you’re not fully understanding this concept, here’s more insight on this approach: https://integrorehab.wordpress.com/2015/06/15/what-kind-of-real-estate-investor-are-you/
It’s no secret that property taxes in Chicago are sky high. In a way, buying a fixer-upper is a loophole since property taxes are based on the home’s selling price. So, if you didn’t pay a lot on the purchase, your yearly tax bill will be less. Additionally, if your property is listed on the National Register of Historic Places, you could claim an investment tax credit for rehabilitation costs.
Given all the benefits of purchasing a fixer-upper home, it’s no surprise more people are looking to buy a fixer-upper over a new house. If you would like to discuss more, feel free to reach out to us!