More and more people are buying fixer uppers – either to make it as their own or to sell it off eventually for a profit. The idea isn't bad at all. In fact there are a good number of people who have made good money out of this.
However, simply buying property in need of repair and making all sorts of improvements on it doesn't necessarily translate to profit. In fact, going overboard may actually cost you rather than making you money.
Before you get to the part of why over-improving may be bad for your investment, you need to understand something about real estate:
If you intend to be successful in the fixer-upper market, you will need knowledge of the real estate market in the area of your property. To find the average price for a house in the area you can go online and access the website of your city’s assessor. (You may also consult a realtor for this kind of information.)
You will need this information to help you get an idea of what kind of improvements to your house will bring your property up to par with the rest of the neighborhood.
Now you might be thinking, if you can afford more improvements, why should you limit them to fit the houses around you. Actually, no one is stopping you from putting in that three-car garage. However, come selling time, these improvements may not fetch as much in value as you hoped.
This is primarily because a certain home value on the area is set. Aside from the actual monetary price, a home value somehow provides a gauge of the kind of lifestyle the people living in that area have.
Put in another way, you will be hard pressed to find buyers who will be willing to spend more for a three-car garage in a neighborhood that has an average of only 1 per household. Worst case scenario, you will close the deal at the expense of not getting back what you spent for the garage.
So when going for fixer uppers, it is highly advised to go for the lower-priced homes. You run greater chances of finding buyers and you risk less if the investment doesn't go the way you hoped it would.
In short, your goal in taking on this fixer upper is to up the value of the property by around $2 for every $1 you spent on repairing it. Avoid going overboard with fancy improvements that cost time and money. Just make the house neat and presentable and that should be more than enough.
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