As a first time homebuyer, you might be shocked to see how expensive it is to buy a house. After looking at what is available in your price range, you might start making some sacrifices to find lower priced houses. Maybe you can go without the garage or the big yard. You might even consider buying a fixer upper.
The media has made it sound like going the fixer upper route is a smart thing to do. And it is if you find a deal. The issue is there are lots of pitfalls along the way. This post will show you that buying the lower priced fixer upper may not always be the smartest way to save some money on a new house.
3 Reasons Why Buying A Fixer Upper Doesn’t Save Money
#1. Hard To Find
Right off the bat, finding a fixer upper that is a good deal is hard to find. Most are overpriced, meaning by the time you make the upgrades, you have spent more than had you just bought a house that didn’t need updating.
Also, a lot of people are still into flipping houses for a profit. So when a good deal comes along on a fixer upper, you have lots of competition. The house rarely stays on the market for any length of time. So you have to be looking all of the time and be quick to pull the trigger.
Lastly, many of these flippers pay in cash. When the seller sees cash as opposed to you having to get a mortgage or even a contingency to sell your house, they choose to sell to the person offering cash.
Because of these reasons, you waste money. You may look for months on end. Interest rates could rise. You could miss out on a great house that doesn’t need much work and is offered at a good price. To avoid this, make sure you check for listings of new houses that don’t need a lot of work.
#2. Cost More Than Planned
There are two issues rolled into one here. First, you have to understand the costs of the upgrades you are looking to do. You then have to add these costs to the purchase price to see if buying a fixer upper is worth it.
Many times, a fixer upper is offered at a 10-20% discount. If you are looking to remodel the kitchen or do any major renovations, you are probably better off looking for a house that doesn’t need so much work. Otherwise you will pay more overall.
The second issue is unforeseen problems. Let’s say you buy the house and start to remodel the kitchen. But as you are tearing it out, you realize that there is mold behind the cabinets. Suddenly your $25,000 renovation project is skyrocketing in price.
While this won’t be the norm, there is always the potential. You should always pad your estimates for remodeling by 10% or so just to help you better absorb any unforeseen issues.
#3. You’re Not Ready For It
Let’s say you buy a fixer upper but you just took a new job that has you working more hours than expected. Now you don’t have the opportunity to start working on your house. Or you might have hired a contractor to do the work, but because you are working so much, you don’t have time to check up on the work.
Fast forward a few weeks and you find they are behind schedule or that the work isn’t done to your standard. Both of these will cost you more in the long run.
While it doesn’t seem like a big deal to buy a fixer upper, it does take a lot of work. For example, when my wife and I were looking at houses, we considered a fixer upper. We ultimately passed and are thankful we did.
We moved when my wife was 6 months pregnant. Having a newborn and working would have left me zero time to actually do the upgrades to the house. And not only would I not be around much to monitor the contractors, the last thing we would have wanted in the house with a newborn are a bunch of strangers making a mess, dust and noise all day long.
On the surface, buying a fixer upper sounds like a smart financial move. After all, buying a house is the most expensive purchase we will make. Saving money on one sounds like a no-brainer. But that savings can come back to bite us in the long run.
Take your time and really think things through before buying a fixer upper. You may realize that paying more for a house that is move-in ready is a better option for you and your wallet.