Real Estate Investor Question: Fixer Upper or Move-in Ready Property?
Saturday Aug 06th, 2022
Beginner and veteran investors both ask the same question, what’s better? To buy a fixer upper or a move-in ready property? While there’s no wrong answer, what might be best depends on your situation and property availability, as well as your equity goals.
My first advice: never settle. It’s tempting to over analyze the data available, and pros and cons. But you need to know what you’re getting yourself into. If you’re real estate investment strategy is more in line with a move-in ready property, then that’s what you should do.
The Truth About Fixer-Uppers
Yes, there is a great opportunity with a fixer upper. Fixer-uppers are properties that more or less have predictable cost-effective fixes. They usually have easy projects that can be done by a contractor without issue. These include things like;
· Carpet replacement
· HVAC repairs or upgrades
· Painting interior and exterior
· Basic landscaping and tree work
More complex projects that require more work include;
· Window treatments
· Bathroom remodel
· Kitchen remodel
If the property needs major fixes like the list below, I would walk away, unless you’re an expert on the need repairs or have a trusted contractor you already work with. These include;
· Septic issues
· Well issues
· Asbestos removal
· Lead paint abatement
· Improperly permitted living spaces or secondary structures
It’s also important to keep in mind that fixer-uppers take more time than move-in ready homes, meaning it’ll take longer to generate a positive cash flow. Fixer-upper homes have a lower price, but take caution with your investment property financing because there are
many hidden code violations that need correction. You have to keep a contingency budget included in your strategy.
A Note on DIY Contracting
Many have the dream of buying a fixer-upper, doing the renovations themselves and turning the investment for profit. But that only truly works if you’re a construction manager or have full time to dedicate to the project. Can you do reno work? Yes. But it’s going to take you away from other things that can be making you money. You have to ask, what’s your opportunity cost? Where you can be spending time to make money? Calculate how much you can make doing other work and compare that to the efficiency of a professional in terms of price and predictability of job completion. There are more risks than you initially realize.
Why Move-In Ready Properties Can Work
A true move-in ready home can quickly bring you income immediately, and instantly adds to your equity. You can turn around a move in home in months, were as fixer uppers take time. Move-in ready homes offer big advantages – even though the downside may be needing to spend more money initially for the buy-inn price but it makes up for it in the long-term.
The fixer-upper model can work if you have a good vendor list, have experience and have the time and money to tackle such a project. They’re in higher supply and some can be diamonds in the rough. But if you’re looking for a safer bet, and a possible higher ROI, I’d look for something move-in ready. If you want advice based on your unique situation, contact me today for some direction!
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