Mistake #6: Buying a Fixer-Upper or Investment Home Without Doing the Numbers
Some home buyers have the dream of buying a fixer-upper and restoring it to live-in condition or selling it for a profit. However, many who try this end up losing money or ‘‘getting chomped by the alligator,’’ as it’s called in the real estate industry.
This is both unfortunate and unnecessary, because neophyte home buyers can avoid many of the financial alligators. Some of the bigger ones are: Failure to research or learn about area values, resulting in their overpaying for their home.
As a result, they don’t have enough money left to fund needed upgrades. Failure to accurately determine the cost of repairs and upgrades. Overconfidence in knowing what work on the home they can handle themselves and what they need to hire or contract out. This can easily wipe out any profit or equity anticipated.
Lack of experience in determining what needs to be replaced and what can be fixed. Capable renovators tend to also be good scroungers for cheap materials they can use. Failure to work the numbers by adding the cost of the property to the estimated costs of renovation.
The two numbers added together should be less than the market value of similar homes in the neighborhood. Failure to build their do-it-yourself skills so they can increase their profit margin. Many home-improvements centers host free classes on tiling, plumbing, and other basic skills.
Neglecting to take the long view by keeping properties and letting their tenants pay off mortgage loans. Many buyers get impatient and try to flip properties for a quick buck rather than keeping them, building equity, and taking advantage of the tax breaks.
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