Should You Invest in a Fixer-Upper?

The beauty of fixer-uppers is not on how they look, but their great return of investment. Purchase a fixer-upper in a good neighborhood at below the market price, invest money in renovating it, and you end up at least doubling its value when it looks good as new again.

But when something is too good to be true, you better watch out. Fixer-uppers are a high-risk, high-reward investment. Before you put in your hard-earned money on one, do your research first and have realistic ideas on what you’re getting into. There are risks of unforeseen repairs and market fluctuations you have to be aware of. Here are some tips on how you can gear yourself up financially before investing in a fixer-upper.

Find a home with the least work needed.

Fixer-uppers that only need cosmetic work will cost you less than those that don’t have a reliable structure. These homes sell at a big discount and fixing them up will not be as much as when you do structural work. You won’t be running a risk of putting in a big budget on the repairs of structural defects. Thus, you’ll earn more profit once you’re done fixing it up.

Save for a rainy day.

Surprises and issues may pop up as you are working on the property even though you have fully inspected it before making the purchase. Having a healthy reserve of money will prove useful when you do additional repairs that you didn’t account for in your budget at the beginning.

Sell after at least a year.

Holding onto an asset for less than a year will be treated by the IRS as a short-term capital gain, which means you have to pay capital gains at your marginal income tax rate. To get a lower long-term capital gains tax rate, sell the home only after a year. However, the scenario is different if you purchased the property as an investor (and not as owner-occupied) because you will still end up paying the capital gains tax.

Hire a general contractor.

If you’re not blessed with home improvement or carpentry skills, it would save you more time and money if you hire a professional to work on the home. Design and build firms like Jay Miller General Contractor in Easton, PA, can spruce up the property fast and efficient so you get the value for your money. Professional-looking home remodeling and home additions can also increase the value of your property.

Always have a Plan B.

The purpose of investing in fixer-uppers is to gain a chunk of profit when you’re done with the renovations. But what happens if you can’t sell the property? That’s where a second exit strategy will help you not totally lose your money, such as renting it out until you are able to sell it.

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