"A home will only sell for what the market can bear. What this means is that no matter how many upgrades were made, or how much money has been invested in the upgrades, a home will only sell for what the majority of homebuyers are willing to pay."
I can make a "killing" in the real estate market by buying a run-down home, for tens of thousands of dollars less than the average home, fixing it up, and then immediately selling it for full price, or more.
If I'm buying a fixer-upper home, I don't need to bother with the added cost and aggravation of a home inspection because I already know what I'm getting.
FACT: A home inspection should always be included in an Offer To Purchase and Sell agreement, and it is arguably even more important to include one when you are looking to buy a fixer upper. Structural defects are normally not visible to the untrained eye, yet will cost much more to repair than the obvious cosmetic fix-ups. Most licensed home inspectors will not only detail the defects that they uncover, but can also give you a good idea of the costs involved in fixing them.
It's better to pay a lot less and buy a "fixer upper" in an undesirable area, than to pay more for a comparable "fixer upper" in a better neighborhood.
FACT: Most of us have heard the quote, "the three most important things to look for when buying a home are: location....location....and location!" While this is obviously meant to be funny, and is a somewhat oversimplified rule of home buying, it does drive home the point of how important it is to consider where you will buy your home. Purchasing a fixer upper in a desirable neighborhood will cost you more initially, but the payoffs -- personal peace-of-mind and higher return on your home investment when you sell -- should not be overlooked.
Once I fix this house up, I can turn around and sell it for double the price I paid.
FACT: A home will only sell for what the market can bear. What this means is that no matter how many upgrades were made, or how much money has been invested in the upgrades, a home will only sell for what the majority of homebuyers are willing to pay. Factors to consider when calculating your possible return on investment:
I can make a lot more money by turning this single family home into a multi-family dwelling.
FACT: While this statement is for the most part true, it may not be possible. Most towns and cities have strict zoning laws that not only dictate the maximum allowable occupancy within any given area, but also dictate the size and design of a home when building new, or creating additions to an existing structure.
1. List Price of Fixer Upper
Profit of $500.00 If your intent was to purchase the house shown in the example above, make the repairs, and immediately list the house for sale, your Actual Profit shown is only $500.00. If, however, your intent was to purchase the same house, but actually live in it for a few years before selling, you would normally expect to turn a much better profit for two reasons:
First, historically speaking, the real estate market normally goes up over time and your anticipated sale price would be higher - affording you more profit.
Second, the money that you would have been paying in rent to live elsewhere - with no return - is actively paying down your mortgage and increasing your equity. As with all investments, though, nothing is guaranteed. So when looking to finance a home, keep in mind that the real estate market has taken some big hits in the past. Never overextend yourself financially.Please note that the figures in the calculations shown were used for example purposes only. Local housing prices, repair costs, and selling costs will vary greatly from one location to another. It is recommended that all Buyers thoroughly research their local costs and legal restrictions before purchasing.