Buying a Fixer-Upper: What You Need to Look for to Maximize Your Investment
5 Parts of the Home You Must Check Before Investing, and What Else to Watch For
Real estate has long been considered one of the best investments an individual can make. And, even after the market crash of the early 2000s and its slow return, real estate still offers one of the best ways for investors to make money.
Of course, the key to winning in this industry is being able to identify fixer-upper homes that aren’t money pits. A fixer-upper needs to be worth much more after making the repairs than the cost of the home and the repairs combined. This isn’t always easy, but there are some things you can do to improve your odds of finding a diamond in the rough. Here are five parts of a home you can’t afford not to check before you sign on the bottom line.
A standard shingle roof only lasts about 15 to 20 years. With a roof replacement on a standard-sized ranch home costing as high as $8,400, this is a substantial expense if the property you purchase needs a new roof. In fact, barring any structural problems, a new roof is most likely going to be the most expensive project you’ll have to take on if you want to be able to flip your fixer-upper.
#2: Heating, Ventilation, and Air Conditioning
Next to the roof, replacing a home’s HVAC system is the single most expensive item you’ll have to deal with. Depending on the size of the system and the type of equipment you purchase, you could be easily looking at $8,000 to replace an HVAC system.
Most fixer-uppers are either going to need their systems replaced or overhauled to some degree to make them safe and up-to-code. In older homes with no previous heating and cooling systems, entirely new systems including duct-work will need to be installed if you have any hopes of being able to sell.
The foundation is what the home stands on, so it’s essential for it to be checked, and checked thoroughly. If the foundation has cracks or looks like it is sinking, then you’re looking at major repair investments. But not all foundation problems are found outside the home. Other signs include uneven floors, gaps around window frames or doors, doors that stick or won’t close properly, and cracks in the basement walls.
#4: Electrical System
If you want to sell your fixer-upper of an investment property for a profit, then it needs to be able to handle the electrical demand of a modern family. Any old or outdated equipment will need to be replaced, and everything will need to be brought up to code. In many cases, the panel box will need to be updated and extra circuits added throughout the home to bring it up-to-date with today’s technology needs.
If the investment property you’re interested in has been sitting empty for some time, then there will no doubt be problems with its plumbing system. Plumbing pipes last longer when they’re being used, and when they aren’t used for a lengthy amount of time, they can become dry, brittle, and more likely to develop leaks. In some cases, the only option is to tear open the walls and replace all the pipes and fixtures to ensure a safe, water-tight system.
Additional Concerns and Considerations
There are a lot of things that might be wrong with a home that can increase the financial commitment just to get it in shape for selling. Other things you should look for or consider when planning to invest include:
- Insect or pest infestations
- Dry rot
- Water damage
- The home’s location
While it’s every investor’s goal to sell an investment property after fixing it up, there are instances where a home still won’t sell. So, if you want to be a real estate investor, you need to have a plan B, in case your plan A, selling the property, doesn’t work out.
You’ll want to ensure that the home you invest in can still turn an eventual profit if you are forced to rent it out, instead of selling it quickly. Your profit will take longer to accrue this way, but at least you won’t be sidelined with a second mortgage if you can get a renter in at the right price.