The Pros and Cons of Fixer-Uppers and Move-in Ready Homes

The Pros and Cons of Fixer-Uppers and Move-in Ready Homes

A new study by Clever states that many Millenials are unhappy with their home purchase. They feel that they are either spending too much on their monthly mortgage or that every ‘spare’ dollar they get is going towards renovations and repairs.

This means that millennials are either buying move-in ready homes or fixer uppers. It also suggests that they are skipping the age old tradition of buying a ‘starter’ home.

But back to the topic at hand. We’ll delve more into those tidbits later.

When it comes to move-in ready versus fixer-uppers, there are drawbacks and advantages to both, but the reasons may not be what you think.

Let’s talk about them before we circle back.

Pros of Fixer-Uppers

Fixer-uppers offer you the chance to own a great house at less of a cost. You see the potential in it right from the beginning, and think ‘I’m going to treat this house right.’ As luck would have it, you do.

Here are the pros to buying a fixer-upper:

Cheaper Mortgage

Buy the right house and you’ll pay less each month in mortgage payments. That’s the most important thing to keep in mind.

Potential for Easy Equity

Fixer-uppers also offer you the opportunity to get a lot of equity in a house right from the beginning. If a house appraises for a lot more than you buy it for (meaning you found a great deal or lowballed the seller), you’ll make a lot of money on it when you sell (assuming, of course, that you make the necessary updates and renovations).  

You Can Personalize It

Fixer-uppers allow you the opportunity to make a house completely your own. Many homebuyers end up buying houses that have a lot of things they like about them and a lot of things they don’t. If your mortgage is cheap enough that you can afford to make changes, then you’ll get the opportunity to make it reflect your personality 100%. There’s something to be said for this.

Potential For an Easier Larger Down Payment

It’s easier to make a larger down payment with a cheap fixer-upper. Plus, the larger your down payment, the lower your interest rate is going to be, meaning you’ll save money on your mortgage over time.

And if you can make a 20% down payment, you’ll be able to avoid private mortgage insurance. Over the life of the loan, PMI can seriously add up, so this is a real pro if you can swing it.

Cons for Buying a Fixer-Upper

Though you’ll save money (initially) on a fixer-upper, there are a lot of drawbacks to them.

Your Weekends Will Be Spent at Home

You’ll get to know everyone at your local hardware store way more than you’d ever like. You’ll be there first thing on Saturday mornings, and then again on Sunday when you realize you forgot a few things or need a different tool.

Fixer-uppers take a lot of work and sweat-equity. You’ll miss the simpler days of rolling out of bed on Saturdays and not having a single thing that required your attention.

Houses that need a lot of work are basically a second full-time job. Sure you could put it off and work on it as you see fit, but if you’re like most people, you won’t want to live in a house that you’re not in love with. You’ll want to get everything over with so you can start enjoying it.

You’ll Likely Rack Up Credit Card Debt

You’re ‘cheaper’ mortgage will be a moot point after a few months once the credit card bills start rolling in if you don’t pay for everything with cash. The interest on your credit card (or personal loan, if you choose to go that route) will likely be three or four times higher than the interest on your mortgage.

This means you could very well end up easily paying the same, if not more, than you would have if you’d simply bought a move-in ready house.  

The Repairs Could Take Years

The average amount of time people spend renovating a fixer-upper is 1-2 years. Remember, it’s just going to be you. Those people on TV have whole teams of people helping them.

You could expedite the process by working with contractors, but you’ll undoubtedly end up spending more than you thought and it will still take a good amount of time.

Contractors are infamous for trying to juggle a dozen jobs and promising unrealistic turnarounds. They’ll say they’ll get there at 9:00, but you won’t see them until 2 in the afternoon. After not seeing them for three days and them only working for two hours on a Friday, they’ll then want to take the weekend off. (This, unfortunately, comes from personal experience from working with multiple contractors.)

When You Go to Sell, People are Still Going to Low-Ball You

After years of making the house beautiful, when you decide to sell you’re not going to get the offer you feel your work deserves. Expect 10-20% less than your listing price.

Everyone wants a deal at the end of the day, regardless of what they’re buying and who they are buying it from.

Pros of Buying a Move-in Ready House

Take everything we talked about with fixer-uppers and reverse it.

Time to Relax

All you’ll have to do is move in your stuff. Nothing will require your time and attention, which is a good thing because moving in and of itself is exhausting.

None of Your Money Will Go Towards Fixing Anything

The house is ready for you. All ‘spare’ change you have will go towards whatever you want.

You’ll Want to Invite Everyone You Know Over for Parties

You’ll think your home is the coolest thing ever and will want to show it off. You’ll quickly make good memories there because everyone you know and love will want to do game-night at your house. That’s a definite pro worth considering!

Cons of Buying a Move-in Ready House

Unfortunately, there are more than a few:

House Appreciation Will be Gradual or Could Nosedive

If you don’t make any improvements to the house, it’s not going to appreciate as much as a fixer-upper would, so the return on your investment will be at a minimum (assuming you didn’t nickel and dime the seller).

This could change overnight if the home’s area becomes the epicenter for new activity and developments. It’s always possible and happens pretty often!

Then again, things in your neighborhood could take a turn for the worse and the value of your home could decline. This, too, happens all too often.

Home values are not static. They rise and fall about as often as gas prices.

Maintenance is Just Around the Corner

Expect to spend about 1% of the sales price on maintenance each year, regardless of the house’s age or current state. This is the norm. You might get away with less the first year, but expect it soon after.

Houses are just boxes baking in the sun, when you think about it. All of them need a constant trickle of TLC!

The Minimum Down Payment Will Be Higher, as Will Your Interest Rate

Unless you can get your hands on a USDA or VA loan, all loans have varying minimum down payments. The most popular, FHA, requires a down payment of 3.5%. If you buy a $250,000 house, you’re going to need $8,750 in cash, as well as money to pay for closing costs.

If you just put down the minimum down payment, you’re going to pay a higher interest rate on your mortgage, which also means you’ll have to pay for private mortgage insurance every month. Generally, the cost for PMI is about $70 for every $100,000.

You’ll Likely Have to Save up to Personalize It

Move-in ready houses usually push a homebuyer’s budget, so if you want to make the home reflect your personal style and tastes, you probably won’t have the money to do that right off the bat.

Expensive, Move-in Ready Homes Often Make Homebuyers House-poor

Ever heard the expression ‘house-poor’? It’s kind of an old one. It means you spent too much on your house and don’t have enough money to do anything else.

Oftentimes people who buy move-in ready houses fall into this trap. They wanted the perfect house, but didn’t think about the life they’d live after they got it.

The Topic Is Really in the Subtext

If Millennials are unhappy with their mortgage payment or the cost of renovations, the subtext then is that Millennials want to buy a great house no matter what. They want their home to either have the potential to be great, or they want it to already be great.

Generally speaking, they want to be completely happy with their home purchase and are willing to spend more money to do so.

But you can be happy and stay within a comfortable budget.

It All Boils down to Debt

Financial experts recommend that your monthly debt not exceed 36% of your gross monthly income. This means that your mortgage payment, student loans, car and credit card payments should not exceed 36% of what you make each month. However, realistically, you want it even lower than this.

Do you enjoy eating out? Do you enjoy buying new clothes throughout the year? Are you jealous every time you see someone you know traveling? Do you have enough in your savings to cover an emergency?

Your home only contributes a small portion to your happiness (if any at all). Consider the things that also make you happy in life, and also consider the value of not being stressed about money. Would a potential home purchase make things too tight? If so, walk away. Homes come on the market all the time. There’s always the potential for something better just around the corner.

Conclusion: There’s No Crying in Real Estate

If you’ve read other articles on this site, you’ve likely seen me say that that buying is always cheaper than renting. This is still true, but you obviously have to buy within your budget.

Don’t let HGTV convince you that you need more than you do, especially if it’s your first house. Everyone gets better at making money the older they get, so save the English manor for when you can actually afford it.    

Every house purchase is a business transaction. Every house purchase is an investment. If you’re not in a stronger financial position than you were before you bought the house, than you bought the wrong one regardless of whether you bought a fixer-upper or move-in ready home.

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