Procuring a fixer-upper to put to use as a Winston-Salem rental property can appear like an excellent option to numerous investors. In any event, it is typically true that the less you pay for a property upfront, the more likely it is to produce higher returns both month-to-month and once you sell. But admittedly, fixer-uppers are associated with a host of prospective downsides, some of which can transform that bargain property into a financial nightmare. Before you come up with a decision to invest in a fixer-upper, it’s vital to think about whether buying one is worth it. After taking into account both the potential risks and benefits, you can more suitably decide whether obtaining a fixer-upper to use as a rental property is the correct decision for you.
The Pros
One of the biggest considerations why rental property investors choose to buy a fixer-upper property is instant equity. Considering fixer-uppers definitely sell at a lower price than houses in better condition, they, many times, increase in value comparatively quickly with just a few repairs and updates. A lower purchase price also usually equals a lower mortgage payment, giving rise to higher net profit each month. You may, moreover, save on property taxes at the beginning by reason that your first year or so of taxes are usually based on the property’s value when you bought it. All of these things can add up to the highest possible return on your investment.
The Cons
Apart from the potential benefits, there are a few drawbacks to procuring a fixer-upper property. To cite an instance, it can be hard to assess just how much work a fixer-upper property will need before it’s ready for a tenant. Fulfilling a professional inspection can help but actually may not often detect serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. Added to hidden costs, a fixer-upper can as well get mired in delays as you have the important, much-needed work done. If you’re appointing a contractor, it may be really hard to get them to follow an efficient timeline. If you’re doing some or all of the work yourself, it’s crucial to be honest in regard to how much time your planned renovations will actually take and how much time you have to commit to the project. The longer repairs continue, the more potential rental income you will miss.
Is It Worth It?
The answer to whether purchasing a fixer-upper is worth it or not is one that only you can answer. Every rental property owner is different, as is every property. To help assess a specific situation and choose if a fixer-upper property is a nice fit for your skills and goals, it’s essential to conduct a comprehensive cost analysis correctly based on the best information you can collect.
After researching and finding several comparable properties in the area, check out what you believe would be the property’s market value after the repairs are finished. Subsequently, add up the total costs of buying and renovating the property. Make it a point to cover every expense, together with closing and carrying costs (mortgage, insurance, utilities, and so on), also make sure to include the cost of materials and labor for all projected repairs. Thereafter, add an extra 10% to 20% for unexpected, immediate expenses. With your total costs in hand, subtract them from the estimated market value of the house. If your expected return is around 10% or higher, you might just have detected a terrific bargain.
Having said that, sometimes, a fixer-upper isn’t necessarily the correct decision. For some investors, buying turn-key properties can be a more efficient but just as effective means to increase your monthly investment income. This is particularly true if the property you want to get is in a higher-end neighborhood, is undervalued by the owner, or has other amenities that make it qualified for a rental property. If you’d rather evade the hassle of construction, delays in leasing, and the costs of preparing a property for a tenant, then probably a fixer-upper property isn’t the wise decision for you.
While doing research on every potential income property is a lot of work, Real Property Management of the Triad can help lighten your load. We offer free rental property analyses for investors, which can help you more easily identify whether the income property you want to buy is a profitable option. Contact us online or call us at 336-355-6677 or 336-777-7444 to learn more!
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