Pros & cons of fixer-uppers
Are you looking for a fixer-upper – a major renovation project? Properties in need of refurbishment can be an affordable choice but challenging for DIY novices. Here are some pros and cons to consider before you buy.
Lower purchase price
One of the biggest advantages is the price. Fixer-uppers give would-be homeowners the chance to buy a property they may not otherwise be able to afford. The asking price is usually well below the potential market value because of the work that needs doing. This can be ideal for first-time buyers trying to get a foot on the property ladder or those moving up, for example from a one-bedroom flat to a terraced house.
Stamp Duty, a form of property tax, is based on the home’s sale price. This means you pay less tax on a fixer-upper than a higher-priced move-in ready home. There isn’t this added benefit for first-time buyers as they no longer pay Stamp Duty on properties worth up to £300,000. If the property is worth £450,000, they pay no stamp duty on the first £300,000 and five per cent on the remaining £150,000. However other buyers can make large savings. Additionally, Value-Added-Tax (VAT) can be reclaimed on converting a building into a dwelling or bringing a dilapidated property that has not been lived in for 10 years back into use.
Greatly increase property value
The opportunities to add value to your property can be much greater for a fixer-upper than a property that already has all the mod cons. Projects with the best return include updated bathroom and kitchens. Even simple kerb-appeal improvements, such as new front door, can boost the value. But swimming pools and decking are best avoided as least likely to get your money back.
If you really want to move into a more expensive neighbourhood but can’t afford the homes listed, a fixer-upper below market price may be your route in. But make sure your renovation project is done to a high standard and in keeping with other homes in the street. Otherwise, you may have problems recouping the costs of your investment when it comes to selling.
Fixer-uppers are the perfect opportunity to create a dream home to suit your lifestyle rather than live with someone else’s tastes in interior design. You can choose to invest in the areas that matter most to you whether it’s a luxury hotel-style bathroom or family-style kitchen-diner. Homeowners can put their own personal stamp on a renovation property.
Going over budget
With fixer-uppers, you need to budget for purchase price plus repairs and renovation. Electrical rewiring, re-plastering and modern plumbing can add tens of thousands. There may also be hidden problems such as dry rot. And that’s before you even think about painting and decorating or new carpets. It’s easy to go over-budget with renovation projects as there are likely to be unexpected surprises and delays. Ask the experts – electricians, plumbers, roofers and damp specialists - for estimates. And when you budget, it’s best to add a contingency fund of at least 15 per cent.
Harder to finance
It may be more difficult to get a mortgage for a fixer-upper property. Some lenders, such as HSBC, say to apply for a mortgage for renovation purposes, a property must be habitable with a working kitchen and bathroom. Sometimes mortgage lenders will retain funds if you are buying a property in poor condition. This is called a ‘mortgage retention.’ The lender holds back some of the loan until you’ve completed essential works. For example, a surveyor might value a property at £200,000 but suggest the lender retain £4,000 for an electrical rewire. The homeowner may need to take out a loan to pay the shortfall. When the work is finished, the lender releases the retained sum and the loan converts to a standard mortgage.
While there is huge scope to add value to a rundown property, the project needs to be approached with caution. Be realistic about your own DIY skills, time available to work on the project and budget. Leave the big jobs, such as plumbing, electrics and re-plastering, to professionals. A botched job can be costly to repair and devalue a property. Check for restrictive covenants, access rights, listing and conservation area status as they might scupper a radical renovation plan. A survey is always recommended for older properties in need of renovation to get a full picture of its structural condition and work that needs to be done.
Moving home is reckoned to be one of the most stressful experiences in life. But stress can be a constant factor when renovating a fixer-upper with hundreds of decisions to make, worry about repairs costing more than expected and unexpected problems at inconvenient times, such as leaking pipes. Going home won’t mean relaxing but another job to do. You may have to live without a kitchen for months and cope with building dust and dirt. The renovation process can be a long, hard road and take its toll on relationships.
Rent and a mortgage to pay
If the house needs so much work it isn’t liveable, you may need somewhere else to stay in the short-term. This means staying with friends or relatives (which can bring its own stresses) or forking out for a rental home. Paying rent, a mortgage and possibly a loan for essential repairs can make a fixer-upper out of reach for some. Even if you stay living in the home, there may be extra expenses from being unable to use parts of it, such as laundry and eating out.
Before buying a fixer-upper, carefully consider all the pros and cons. If you’re up for the challenge, you could turn a diamond in the rough into a polished gem.