If you’re willing to put in some extra legwork when buying a home, choosing a fixer-upper is a great way to cut costs without sacrificing amenities, location, or square footage.
And according to Scott McGillivray, the host of HGTV’s “Income Property” and a real estate expert who’s invested in over 100 properties, going the fixer-upper route is a “win-win.”
“You get to customise the renovations to your liking, first of all,” he explained to Business Insider. “You get to renovate it the way want. But secondly, you actually create value in the home when you do those renovations. So, you’re building equity into your portfolio.”
A new study by online brokerage site Owners.com reported that 51% of homebuyers are indeed willing to purchase a house that needs work. But not all fixer-uppers are created equal. You want to make sure that the house doesn’t need so much work that it negates the discount.
To figure out if a fixer-upper is a good deal, McGillivray recommends figuring out how much the property would be worth post-renovation and comparing that to the sale prices of other similarly sized homes in the area.
“You have to determine what the after-repair value of your home is going to be,” he said. “Looking at similar homes that have sold that are in good condition, what are they selling for? What is the actual fixed-up value of that home?”
McGillivray shares an example: If you score a home for $US200,000 and comparable properties in the area are going for $US300,000, you need to invest less than $US100,000 in renovations or you’re over-paying.
“Ideally, I would try to make sure there’s a really significant margin, like $US50,000-plus, that’s going to give me equity there,” he said.
Fellow HGTV stars Chip and Joanna Gaines of “Fixer Upper” also know a thing or two about updating less-than-perfect homes. For the Gaines, choosing the right property to flip comes down to one question: “Is this asset going to depreciate in value?”
If that’s a yes, it’s probably not worth your time. “In the housing universe, if you’re confident or nearly positive that these assets are going to appreciate in value, it’s a no-brainer to buy,” Chip previously told Business Insider. “If you get into complicated markets to where you’re not confident, rent for a season, or rent for a year or two, and let the market sort of calm itself down before you jump in with both feet.”