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As the cost of buying a home continues to soar, the fixer-upper is gaining appeal. With about one in five Gen Zers saying a "lack of affordable starter homes poses a barrier towards homeownership," more than half — 57% — "are willing to put an offer in on a fixer-upper," said CNBC, citing a new report by Clever Real Estate.
A fixer-upper is defined as being "available at a lower purchase price," said Rocket Mortgage, but that's "because it requires major maintenance work once you buy the house." So, is it worth getting a lower purchase price in exchange for all of that work and investment down the road? Here's what to consider.
What are the upsides of buying a fixer-upper?
We'll focus on the positives first — and there are certainly some pros to opting for a fixer-upper over a house that's move-in ready. The pros:
A lower purchase price. "Fixer-uppers cost less per square foot than move-in ready homes," which can mean "both your down payment and your monthly mortgage payment are lower," said Money Crashers. In turn, this "makes it easier to afford a home, or to get a bigger house than your budget would allow otherwise."
Fewer buyers to compete against. Another upside? There will be less competing buyers than you may find on more move-in ready homes. "Generally speaking, you'll find less competition for fixer-upper homes," said Rocket Mortgage.
An opportunity to customize the home. "When you redo a house from the ground up, you can make it just the way you want it," said Money Crashers. While you may hesitate to undo a house that's already in good shape, you will need to do that work in a fixer-upper, offering you the chance to make exactly the choices you want.
What are the drawbacks?
Of course, there are plenty of downsides to buying a fixer-upper as well. The cons:
Cost of repairs and renovations: While you are saving on purchase price, you will have to pay for the repairs and renovations the home needs. And "depending on the renovations, you may end up barely breaking even — or spending more money on a fixer-upper," said Rocket Mortgage.
Reality of coordinating and living in construction: "For a fixer-upper that needs a lot of work, you'll likely have to begin planning your renovation in advance," said U.S. News & World Report. Plus, you will either need to find elsewhere to live while work is getting done or deal with living in a noisy construction zone for a period of time.
Possibility of surprise issues: Even the best-laid plans can go awry, especially when it comes to "older houses," which "often have hidden problems a home inspection doesn't reveal," said Money Crashers. This can make it "hard to come up with an accurate renovation budget ahead of time."
What should you consider before purchasing a fixer-upper?
Before you commit yourself to the challenge of a fixer-upper, there are a few tips to keep in mind:
Make sure the home you choose is in a desirable location. While there is a lot that you can change about a fixer-upper, one thing you cannot change is the home's location. As such, aim to find a fixer-upper that "is in a desirable neighborhood that you love," said Bankrate. Otherwise, "if you dislike your surroundings or property values are struggling in the area, you might be left with buyer's remorse."
Always get a thorough home inspection. A home inspection is always important when purchasing a home, but it is particularly critical when buying a fixer-upper. For the inspection, "focus on the major components of a home so you can anticipate how much you might need to budget for serious structural or functionality repairs," said Bankrate. Specifically, this includes the house's roof and foundation, AC and HVAC systems, and plumbing, electricity and sewer systems.
Know how much time and money you can realistically offer. While you might save on the purchase price with a fixer-upper, you can expect to shell out for renovations along the way. Part of this budgeting equation involves whether you can do some of the work on the house yourself and if so, how much of your own time you are willing to invest.