Fixer-upper is a great way to make money in real estate.
Purchasing your first home is an incredibly rewarding experience but qualifying for a mortgage and coming up with the money for a down payment can be a challenge for many first-time buyers. This is what makes purchasing a fixer-upper so great: you can buy your first home at a lower price and with less money down, and you’ll have the option to sell the home for profit when you’re done remodeling it.
On the other hand, purchasing a fixer-upper as your first home does have some downsides as well. While it’s true that fixer-uppers enable you to purchase your first house at a lower price, you’ll typically need to pay for home renovations — and you may need to live in a construction zone if you choose to move in right off the bat. There’s also a chance that the fixer-upper could turn into a money pit, and you could end up spending more on renovations and repairs than you would a move-in-ready property.
There are pros and cons to purchasing a fixer-upper, and first-time homebuyers in particular need to consider it carefully. But if you’ve decided that you’re ready to meet the challenge of buying a fixer-upper, the following tips will help ease you through the process.
Pre-Qualify for a Mortgage
Getting prequalified for a home mortgage is the first step toward buying a fixer-upper unless you plan to purchase your first home with cash. Applying for a mortgage won’t be necessary if you’re paying with cash, but it’s still important to schedule a home inspection — even though you won’t be required to do so.
If you do wish to finance the purchase of your first home, an FHA 203(k) rehabilitation loan is an excellent option for fixer-uppers. Other options for financing are using a Hard Money Lender in Arizona. These loans can be used to pay for the purchase of a house as well as your home renovations. Start by meeting with an FHA-approved mortgage lender to discuss your eligibility and provide verification of your income, credit history, assets, and employment.
Search for Fixer-Uppers
Once you’re pre-qualified for a mortgage, it’s important to hire a skilled and experienced real estate agent who can help you to find fixer-uppers for sale. Some of the things you’ll want to consider when searching for homes include:
● The home’s location. Desirable locations are best, including those located in up-and-coming neighborhoods.
● Home layout. Three-bedroom homes with one or more bathrooms tend to be the most profitable when flipping a fixer-upper.
● The condition of the home. As the name implies, fixer-uppers need work. However, some problems (including structural, electrical, plumbing, and roofing issues) may not be worth the hassle.
Regardless of whether you’re required to pay for a home inspection, a professional inspection is something you won’t want to pass up as a first-time homebuyer — especially when you’re purchasing a fixer-upper. You may also wish to pay for a pest inspection, roof certification, and sewer line inspection.
Renovate Your New Home
After purchasing your fixer-upper, you can begin to renovate your new house! DIY renovations will usually be the most cost-effective option, but these could take months or years to complete if you don’t have a lot of experience under your belt. So search for professionals who have the skills and tools needed to renovate your kitchen, bathrooms, cabinets, and counters in a lot less time.
Decide Whether to Stay or Sell
Once you’ve completed your renovations and repairs, you’ll need to decide whether to live in the home or sell it for a profit. Joe Gomez of Opendoor shares some tips to help you determine whether you should sell the home or stay put for a few more years.
If you plan to stay in the home after completing your renovations, you may wish to refinance your mortgage to take out money for additional home improvements and repairs, lower your mortgage payment, remove private mortgage insurance (PMI) from your home loan, or roll your mortgage and home equity line of credit (HELOC) into one monthly payment. There are advantages and risks of refinancing your mortgage, however, and it’s important to only refinance if doing so will be worthwhile.
If you decide to sell – and you decide that you enjoyed the whole process enough to do it again – you might want to think about turning this into a regular business. For tax purposes, you’ll need to get an EIN, or Tax ID number, so that you can hire employees and protect your assets.
The Bottom Line
Purchasing a fixer-upper can be a great way to buy your first home at a lower price, but there are some risks you should be aware of before leaping. And if you decide that a fixer-upper isn’t right for you, other first-time homebuyer programs can help you to afford a move-in-ready home. Meet with a mortgage lender to go over your different options, calculate how much house you can afford, and begin your journey to homeownership!
If you’re looking for more information about purchasing,
fixing, and selling a fixer-upper, be sure to explore
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.