Ask the Reader – a Fixer Upper Home Or …

by David Ning · 23 comments

Emma and I caught the “house hunting bug” lately – we have been touring a ton of houses. The whole process is similar to advertising in that the more houses we look at, the more we want to look (and buy). No wonder my realtor was so aggressive even though we told her our time frame to purchase is in 6-12 months. (It’s all an evil ploy if you ask me but anyway…)

Fixer Upper vs Nicer House

We saw a house a few days ago that we liked. It was completely remodeled even though it’s in a less desirable neighborhood than the ones we’ve seen. It wasn’t big, but it’s plenty for the two of us. When we got home, we searched the neighborhood and actually found a fixer upper a few houses down selling for $439,000.

This got us thinking – Does it make more sense to buy a fixer upper in this economy?

It might take $50,000 to remodel the house to an updated and livable condition, but even that is much less than other houses that we have seen. The pros of buying this (or any) fixer upper seems to be:

  1. Cost – In this economy, having more money for emergencies are always a good idea.
  2. Reduced Risk – No one can accurately tell how the housing market will perform in the next 3-5 years but many believe that we are still going to go down in the near future. By buying a less expensive house now, it won’t be as painful even if housing prices go down. On the other hand, it will provide protection against a possible (even if it’s tiny) chance that the housing market will actually go up.
  3. Learning to be a Home Owner – It’s all great if I buy a nice house that doesn’t need any fixing but how am I going to learn if nothing breaks? As a first time owner, it might make sense to learn the basics by buying one that actually needs attention.
  4. The Numbers – The numbers to own instead of rent is much better when the house cost half as much. Since property taxes are based on the selling price, I will also save money on that every year.
  5. It’s Not that Bad – The physical location of the fixer is actually not too bad. There’s a backyard that has a view of the canyon and if we remodel the house, the inside will be nice.
  6. Investment for the Future – Since the finances make more sense, this can be a stepping stone and become an investment property if I become rich one day.

The cons of the fixer upper seem to be:

  1. Standard of Living – Moving to my current apartment was one of the best decisions I ever made (even though I probably spent twice as much on rent as before). I’m much happier here because I don’t feel like I’m living in a junk yard anymore. By buying the fixer upper in a less desirable neighborhood, I’m in effect downgrading my life style. (Disclaimer: The fixer upper in question is actually in an okay district. We are just unsure of the neighboring residences, and the fact that it’s not as desirable as the other surrounding areas or the apartment I’m living in now concerns me).
  2. Good Neighborhood – I’m a big believer in hanging around successful people. When you are in a good neighborhood, there are more good examples that you can learn from. While you can never really show on paper how much of a difference this makes, I feel that buying in a less desirable area is not giving us (and our children) the best chance at maximizing our potential.
    Note that money has nothing to do with success behavior and integrity. I know plenty of good people who are cash strap and losers who have lots of money. It’s just that the chances of finding good successful neighbors are much higher in a more desirable neighborhood.
  3. Being Priced Out – In current market prices, I can afford the more desirable neighborhoods. If I don’t buy now and the housing market goes up, I may never be able to.
  4. Back to Earth – With the remodel, the house will still likely cost a huge majority of everything Emma and I ever saved up. No one will know the future but what are the chances that I can keep that house if I move? Even if I can keep it, do I really want to manage tenants?

What do you think? Fixer Upper in Less Desirable Neighborhood?

The majority of the advantages of buying the fixer upper seems to be financially related while the disadvantages are more emotional/psychological. There really isn’t a way to find out what the differences would be unless we take both roads and measure the difference after a couple years, something that is not possible. So, what do you think? Is the fixer upper the more prudent choice or should I just stick with trying to buy a nicer house?

Comments are appreciated and welcomed.

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{ read the comments below or add one }

  • Rebecca says:

    My mom bought a fixer-upper when I was 2 years old. I’m 42 and she’s still fixing it up! Also, she should have sold the house in the late 1980’s when the housing market was highest for her location. Now, she’s looking at downsizing and won’t be able to sell it for what she thought it would be worth…not even close. She has put tens of thousands into it over the years, and it looks nice, but the job is never done. Then, if you have a family, that will suck money from your fixer-upper projects, and if there are any emergencies, those too will take away from your cash.

    Now, I purchased a townhouse, cheap! I wanted the experience of doing-it-myself remodeling. I maxed out my equity line (I know, wrong thing to do!) and did most of the work myself. Then, I moved out of state and had to sell…in June of 2007! Had I put it on the market six months sooner, I would have been able to sell it for roughly 70k more than I paid and I would’ve paid down the equity line and walked away with money in my pocket. But the opposite happened and I made barely enough to pay down the equity line. In fact, I ended up with debt because I was still paying the mortgage even though I wasn’t living there, while paying the mortgage on another home and making 25K less at my new job!! What a nightmare!

    So, a few years wiser I would say, go with the nice home! If you really feel that you need to the experience of fixing up a house, then go for it. I’ve been there and done that and I have absolutely no desire to spend my time doing that ever again. I will hire out! Either way, it will cost you money. But, think about what your time is worth too. When I began remodeling my townhouse, I stopped going out with friends and quit most of my hobbies for two years, and I worked around the clock so I could get the job done and behind me. But the truth is, once you start working on your home, you’ll always find other projects that need to be done and well, you could become a prisoner to your home, just like my mom has for the last forty years!

    Cheers!

  • Vickie says:

    My grandad has an older home that needs about 15,000.00 of repairs and updates done. He wants to keep it in his name, he is 78 yrs old and wants it just in case he gets ill and it needs to be sold to pay for expenses. He is willing to let me live in it free for 2yrs until I’m out of college if I fix it up. I am a single mom and am paying 850.00 rent now with an under the table week end job so there for no real proof of income. How can I do this???

    • marci says:

      Rent for 2 yrs at $850/month is $20,400.
      House needs $15,000 in repairs…. Word to the wise – repairs almost always cost more than the estimates….
      Difference as stated is $5400, or $225/month – meaning, if you spent that repair money, it would cost you $625/month for rent to stay there, plus your labor…. So you would not be exactly staying there for free.

      Will that $15,000 drop any if you are able to do a lot of the labor involved?
      Big items, like a roof, etc, would take a big cash outlay all at once – are you able to do that or will Granddad do that and you pay him back?

      Make sure any updates will be worth the improvement – meaning value of the home would increase enough to make it worthwhile.

      I don’t know why you need proof of income to live in Grandpa’s house nor to do the repairs – unless you are having to borrow money to do it.

  • jennifer says:

    Thank you everyone for the advice, I really need as much as I can get. I won’t move forward with that house as I think I better look some more. I will keep you posted on what’s going on with this adventure which is the first major step of my life. I’m glad i ran across this site, thank again.

  • marci says:

    PS – a land sale contract can be a wonderful way to buy and sell property – I’ve done several buys and sells this way – but I always ALWAYS use a lawyer for the contract, and an escrow company to declare clear title to the property and get title insurance also.

  • marci says:

    Jennifer – about that house…. how much will it be worth when you have it all fixed up? (compare to the houses around it)… and how much $$ will it take to fix it up?? Now double that cost to fix it, as it always seems to double as it gets more involved the further into it you get….

    Now – add the $30,000 and the cost of fixing it up…. Will it sell for that much when you are finished? If you are going to have to put more money into it than it is worth, then I’d run run run away from it.

    And how good are you with the repair skills necessary for some of the do-it-yourself projects???

    If the inspection shows that the foundation, roof, electrical, and plumbing are all solid, and there is no dry rot/termites, and if most of what you will have to do is cosmetic/patching/painting, then you might have found a good deal…. but also then check to make sure it is not a meth house or something similar that would make it unsaleable later on.

    If you buy, make sure you can get a clear title to the property, with no liens on it, and that the owner has the right to make the sale, and make sure the contract is iron tight – I’d seriously use a lawyer – and that the interest rate is good and non-flexible. Sounds like the down payment wouldn’t even cover the closing costs tho – so something sounds fishy there.

    Also – if the house is not in your name (meaning the mortgagor keeps it in their name til you pay it off), then you will have trouble getting an equity loan against it for repairs, and you will have trouble getting contractors to work on it unless the owner will allow contractors notice to owner of intent to lien paperwork for the work being done.

    There’s a LOT of homework to be done on this one, and a lot of questions to be answered, at least in my opinion, before I’d touch this one 🙂

  • jennifer says:

    I am trying to buy a house but my credit isn’t the best, so i might have to end up getting a fixer upper house. I’m new at this and I’m not sure of where to start. I know i don’t want to get something that requires to much work. and I don’t think I can go threw a bank for a loan. I was told I should find a private owner who doesn’t do credit checks or go through land contract. I don’t know what that means. There’s a house I liked, really nice from outside, and the owner even said she wouldn’t do a credit check. I would have to put 500 down and 245 a month. I knew it was too good to be true because when i went inside, there was plaster everywhere and holes in ceiling plus kitchen sink, light fixtures stolen, and the list gos on. Long story short, the whole house need redone and she wants $30,000. She lives out of town and I wonder if she realizes the condition of the house she is trying to sale. I was surprised the outside was nice but inside looked like something out of a horror movie. Any suggestions?

    • MoneyNing says:

      For some reason, putting 500 down plus paying 245 a month sounds more like renting than buying. Make sure you get a contract that clearly states what is happening in this transaction. When you buy a house that’s this inexpensive, you will have to be able to fix everything up yourself. I also suggest getting an appraiser and get the house checked for damages before you commit. Make sure that the house is in an average neighborhood because houses are inexpensive for a reason.

      I am happy that you are looking for a house but I would be very skeptical about this one. Be careful and do your due diligence.

    • jim says:

      jennifer,
      RUN the hell away from this place.

  • MoneyNing says:

    Thanks everyone. We are still in discussion about this home buying thing. Unless the perfect house shows up for our lifestyle, we will be waiting.

    We did rule out the fixer upper though since like you all said, it will be a pain for some newbie handy man like me 🙂

  • CD Rates says:

    If it was a fixer-upper in the diserable area, I would go for it. But it is not. Location counts for everything, especially when you are planning on having a family.

    Also, keep the family size in mind when selecting a house. What will work for two, won’t work for 4 or 5 (or 6 or 8 :O) )

    I would keep looking. Your not in a hurry which puts you in control, not the realtor. The realtor may be in more of a hurry. The realestate business hasn’t been the best of late. :O)

  • Dominique says:

    We went for a fixed up place as after factoring in the additional cost of buying a “ready made” place it was still worth it in the time/effort changed. Even though the place was fixed up there was still need for minor touch up here and there due to wear and tear. It is also easier if you have a family and young kids and you can’t do with a incomplete house.

  • Robin L. says:

    My fixer-upper turned out to have lots more hidden problems. I wouldn’t do it again, myself. If I were buying now I’d go for the place that is already fixed up.

  • Miss M says:

    Well neighborhoods do change and in fact buying into an up and coming neighborhood can be a smart move. Buy while the cost is still depressed and enjoy the appreciation when the neighborhood becomes desirable. But you need good instincts to determine which neighborhoods have potential. As for a fixer upper, most first time buyers overestimate their ability and desire to remodel a house. Have you ever taken on a huge construction project like that? I think it’s best to find a house that only needs cosmetic work, projects like that are easy for the inexperienced.

  • Melanie says:

    It’s a very personal decision, but (despite your realtor’s best efforts) make sure you don’t jump into anything too quickly.

    Fixer uppers are not for everyone. For everything you know needs fixing there can be any number of other repairs below the surface or just waiting to happen. It’s not just the initial renovations to consider but the higher maintenance costs on the whole. If you are already a person who is handy with these things, it can be a great opportunity. However, unless you are someone who is already tinkering in similar situations, I don’t think it’s a good idea to buy a house that needs work assuming you will learn.

    From your comments, it sounds like you don’t have any experience in home repairs. Do you have any friends doing repairs that you could help out in exchange for some pointers? What about volunteering? Maybe there’s a home building supplies store that offers lessons. Better to test the waters before committing yourself to a life-changing decision. If it turns out you don’t have a knack for the DIY, contractors will cost you big bucks in your fixer upper.

    Another easy to forget cost is buying the necessary tools and equipment. This is not cheap, especially if you need to outfit yourself all at once.

    In general, don’t commit yourself to a fixer upper, unless you have the skills and equipment to “fix ‘er”. Otherwise, you’ll end up dependent on others and constantly frustrated.

  • marci says:

    If you are not happy with the neighborhood now, odds are you will not be happy with it later. Buy what you need and what you expect to need… if you are planning on a family within 5 years, then buy with that in mind. Why buy too small when you know you are going to need more later? There’s NO hurry.

    Standard of Living – if you already have reservations, don’t buy it. Could be a gut instinct, but maybe not. You probably aren’t going to find a house with the pool and gym and all those condo perks – so don’t set yourself up for failure there either. If you are happy renting, continue to do so til you feel ‘right’ about buying. Are you ready for yardwork, and mowing, and cleaning gutters, and patching driveways and pruning trees and all that stuff?

    Successful neighbors – I’m not buying that the neighbors have to be successful for you to be successful. Who your neighbors are, or how successful they are, has nothing to do with how successful you can be – at least it has never affected me in that way. I am who I am regardless of the environment around me. My neighbors do not affect my success one way or the other.

    There will always be a ‘good buy’ out there. No matter what the market. Take your time and find it – you’ll know when you do – there will be no reservations about it.

    Myself, I would always go for the fixer-upper… but then that’s how I’ve made my money – turning over houses. However, it takes LOTS of elbow grease, time, sacrifice, confusion, and living in a construction zone if you want to do it economically and make money at it. It also takes a willingness to learn new skills and being ok with sheetrock dust all over everything and paint speckles in your hair 🙂 For 7 months I lived in this house with no kitchen, just a microwave and an electric skillet, and with no running water except in the bathroom. Not easy to wash dishes in the bathroom sink, let me tell you, but it can be done 🙂 So how much of that are you willing to put up with? I have doubled my money on my deal – but it’s been a lot of hard work. Was it worth it? Totally, YES. But next time, I’d build the garage first ( I still don’t have one) so that I had a place to store stuff and not have to keep moving boxes around. Lesson learned. And, be willing to pay cash for all your remodeling – I am soooo glad I have no debt on this house.

    You are going to have to be willing to invest a lot of time, plus money, for a fixer upper.
    If you have everything done by others, it costs way more than if you do it yourself. So how much time and effort are you willing to expend?

    Good luck with your decision.
    Take your time – sounds like you are window shopping and just trying to talk yourself into it 🙂

    • marci says:

      Update – January 2011 – I just bought another fixer upper, and will be renting out the one I have just finished renovating that I spoke about above.

  • Jason Unger says:

    If you’re lucky, you may be able to find a well-manicured home that the owners invested a lot of money in, but can’t sell.

    We found ours: the previous owners re-did the whole kitchen and put in new hardwood floors, but couldn’t afford the mortgage. So, we’ve found the best of both worlds.

  • Erica Douglass says:

    My advice is to slow down. First of all, you are shopping during the peak buying season (spring). There is worse inventory on the market right now than there was in December of last year. Be smart and wait until the end of the year.

    Secondly, any house you buy in your area is going to depreciate by at least $1,000/month and perhaps more. Are you factoring that into your decision?

    The higher-end areas are about to get nailed; have patience.

    Take a step back and look at your real goals for buying a house. You are in an apartment you enjoy and you just negotiated the rent DOWN. You will not likely be able to do that with a mortgage payment; plus you will be buying a depreciating liability. What’s the rush? If you enjoy where you live now, take some time and enjoy it. Don’t get caught up in the next big thing.

    Examine your life goals. Do you need to buy a house to achieve them? The answer is probably not. In that case, slow it way down.

    -Erica

  • Elizabeth says:

    My husband’s philosophy has always been that he’d rather have the smallest house in the nicest neighborhood than the biggest house in a questionable neighborhood. Remember: Location, Location, Location.

    I assume you’re looking for a house that you and Emma will be in for years and years to come. A place where you’ll raise a family. The way I see it is you can take a hovel and turn it into a palace but you’ll never be able to change the neighborhood.

    And as someone who has lived through several home “upgrade” projects in my own fixer-upper, I will warn you to bear in mind that they ALWAYS cost more than you expect. Always. And projects always take longer than expected. Always. And living through home remodeling projects are inconvenient. Despite all that, I’ve enjoyed the process of remodeling — especially now that I have some experience and know better what to expect. I’ve quite enjoyed the last two bathroom remodels — projects on which I took the role of general contractor and designer.

    Good luck and happy house hunting. Don’t let the appeal of those beautiful beyond-your-reach homes lure you into making an ill-advised decision. Hold out for a house you love that you know you can afford. I understand that you’re worried you’ll miss the bottom but I, for one, don’t think we’ve seen it yet.

    • jim says:

      This is EXACTLY correct. Buy the cheapest house in the most expensive neighborhood you can afford. Hands down – the BEST advice you’re ever going to get. Location, location, location!!!!! And once you find that place, plant your family there and do not upgrade/move – whatever. Let your investment finally start making money for you.

  • Peggy says:

    When we bought our first house it was a fixer upper that we got for a very good price. The problem was that it was in an OK area but not the greatest. We didn’t really focus on that because we were both working long hours and we had our first home. We poured our savings into that house and made it into a really nice “starter home” but when I had our first child and decided to stay home I noticed a lot of things that I hadn’t noticed before, like the cars speeding past our house, there wasn’t any babies in the surrounding area and the killer, the houses surrounding our block weren’t in the best of shape. We ended up putting the house up for sale and getting far less than we should have for the amount of work we put into that house. My theory is buy a house in a desirable area because that house will never lose it’s equity. Even in these trying times our house is still holding it’s value and then some. You and your wife can always improve upon any house but the house in a desirable area will reflect monitarily any improvements you make. Also, don’t let these Realtors make you believe you can’t afford any house in a desirable area because that isn’t true either, you just have to go with your gut and persevere there is an affordable house in a desirable community that you just haven’t found yet.

  • cb says:

    Unfortunately less desirable neighborhoods are only going to get less desirable over the next 2-3 years before any recovery. If you’ll need to live in this house, take that into account. I bought a house in Sept that was a minor fixer-upper, and living in it, you don’t get to fully rest until it’s in pretty good shape. This can be tiring in additional to a regular job.

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