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With over 100 TV shows that talk about fixing up or renovating houses, it’s obvious people are interested, and why wouldn’t they be. You can buy a house for $160,000 and sell it for $225,000 a month later? Sign me up!
But, as with anything in life, things aren’t always as easy as they seem. I have some close friends who flip houses for a living, and although it can be quite rewarding, I don’t think you’ll hear them say it’s easy.
Now, I’m not saying you shouldn’t try to buy a “fixer upper.” We’re even planning on buying one ourselves. Instead I have some questions you should ask yourself to get you thinking about the best ways to do so.
1. Does The House Have Good Bones?
Sometimes a deal is a deal, and sometimes they’re a dud. Just because a house appears to be priced lower than it should be doesn’t make it an automatic great buy. Take a look at the structure of the house to see if it can be opened up. If there are walls that can be taken out to open up the space, you can likely make more money when you sell it. A study focusing on homes sold in 2011 to 2016 found that homes with open floor plans appreciated 7.4% a year in value, and they credited it to they’re being more demand for open concept houses. Having more open space makes the home more flexible, so it appeals to a wider audience.
Another good idea is to tour houses in the price point you’re hoping to eventually sell your fixer upper for. What features do most of those houses have that you can easy add to yours? Are high ceilings a must? Do most of them have 3 or more bathrooms? Improving a fixer upper isn’t rocket science. Use other houses to discover what you need to add to your home to make it more appealing.
2. Is Renovating THAT Home Within Your Budget
You should always start your search for fixer uppers by first truly understanding how much money you have to spend on a home and renovations. Once you have a good handle on how much money you’ll be able to spend or get a loan for, it’s time to start getting estimates on improving it. It’s easy for costs to spiral out of control, so the more preparation you do ahead of time, the more prepared you’ll be to handle any issues that arise.
This is where a good lending partner like Frost Bank can make things easier. It’s a good idea to talk to them early in the process, so they can let you know what is going to impact your loan approval and interest rate. They can advise you on how your credit score, debt-to-income ratio, income level and other factors are going to play a role in the process to get you the best rate and loan for your situation. One thing we found out is that if you’re going to leave a balance on any of your credit cards, it’s best not to leave it on an American Express, because they exaggerate the minimum payment, which can limit the amount of loan you qualify for. There are a bunch of little tips and tricks, so it’s best to talk to a banker and not to go in blind.
Another good idea is to have at least a 20% down payment on your home, or banks will usually require private mortgage insurance (PMI) due to the risk in lending 80% of the home’s value. PMI usually costs .5% to 1% of the loan value per year, so if you are able to avoid it, it can save a lot of money in the long run.
As with any budget, it’s a good idea to build in some extra costs to cover any mistakes or surprises that come up.
On a personal note, I love using Frost Bank for our personal and business accounts as well. We’re busy people, and their banking app lets us deposit checks by phone, pay bills, and even text or email money to pay back our friends or family. One feature we haven’t had to use yet, but is a nice touch, is the ability to freeze your debit card via the app if you think it’s lost or stolen. We recently had a scare on our trip to Colorado, thinking we had lost one of our cards, but ended up finding it shortly after. Being able to freeze an account via the app is really convenient.
3. Are You Able to Do Some of The Improvements Yourself?
One of the biggest ways to build extra equity in a fixer upper is to do some of the work yourself. There are some jobs like replacing a tile floor, demoing a kitchen, landscaping the yard or even hanging drywall that many people can do themselves if they feel capable. Finding houses that need work you can handle will help when it comes time to sell the house.
4. Do You Have Any Resources to Help You?
Do you have any friends with special skills that may be able to help you out? There are A LOT of industries that serve the housing market from architects to construction workers, roofers, electricians, plumbers, even people who work at companies that sell counter tops, insulation, or sprinkler systems. Chances are you know someone in an industry that may be able to help you out or even get you a discount on some of the materials. Friends help each other, and as long as you’re not they type of friend who never returns the favor, you’ll likely find someone willing to give you a hand.
5. Are You Ok Living in a House During Renovation
Depending on the severity of the work that needs to be done, it may be uncomfortable at times. When deciding on a home, you should ask yourself if you’re ok dealing with the dust, noise, clutter, and at times, frustration that can come with the specific work the house needs.
6. Are you Self Employed?
This may seem off topic, but for those that are self-employed, buying a home isn’t as simple as it is for those that have traditional jobs. We’re looking to buy our first home in early 2018, and I’m glad we started looking into mortgages as early as we did. Lending to people who are self-employed is a different process than for those with tradional jobs, so making sure you talk to someone like Frost Bank as early as you can in the process will give you more time to get everything together, and potentially even make different business decisions, to get the right loan and interest rate.
We’re been preparing for the last 6 months and are excited to buy our first home. Stay tuned as we’re going to be sharing the entire process here on the blog.
Have any tips for other people buying their first fixer upper? Let me know below in the comments!