Considering buying a home that needs a little TLC? It can be a worthwhile investment—if you know what you’re looking for. Homes that require renovation run the gamut between fixer-uppers and total rehabs. The difference? Fixers tend to lean toward cosmetic upgrades, whereas total rehabs likely need a structural overhaul.
If you’re unsure which category a prospective property falls into, a good rule of thumb is to determine its livability. If you can safely and comfortably live in the home while renovating, it’s likely a fixer-upper. For total rehab homes, the opposite is true.
There are different types of fixer-upper homes out there. Some are simply horribly outdated. All of the major systems are intact and functioning, but fundamentally there is nothing wrong with the house. A home that has avocado counters, shag carpeting and nasty wallpaper is certainly livable from the start. Provided you can tolerate the interior cosmetics for awhile, this is the sort of home that you could move in to and update on a room-by-room basis as you’ve got the time and budget.
Fixers of a nastier variety may have major flaws, like missing flooring, a non-functioning furnace, a roof that needs replacing or a foundation that is sagging. Obviously to purchase one of these homes, you need the willingness and financing to address the rehab right after you purchase to make it livable. In fact, many mortgages would require some of these issues to be addressed before granting you a loan.
Don’t count out a rehab yet, though. Many investors see serious profit when renovating a home top-to-bottom—rehab homebuyers may find themselves in a less competitive and less expensive market with unique funding options, often making the reward greater than the risk.
Whichever direction you head in, keep in mind both types of properties should be evaluated by a qualified inspector. He or she can provide a list of potential repairs and replacements, helping you gauge the resources you’ll need to commit to the project.
