Buying a property as a real estate investment, fixing it up, and selling it quickly is an attractive real estate investment strategy. The potential for large profits can be a great reason to purchase a “fixer upper”; however, you need to be aware of the risks as well as the rewards of buying such a property.
The major advantage of buying a fixer upper is that you can often obtain such a property below market value, giving you plenty of opportunity to sell it at a profit later. Often, the owners of fixer uppers are financially unable to make the necessary repairs to such homes, and would rather sell the properties than worry about upgrades and repairs. This gives you the leverage to negotiate a lower price.
The first major downside to this investing strategy is that you will have to front the costs of the repairs yourself. You can make an estimate of repair costs when evaluating a fixer upper home for purchase, but you’ll need to build in extra costs for undisclosed damage and surprise repairs. Properly accounting for repair costs is critical to your success as a real estate investor – being too optimistic about repair costs can cause you to end up spending more on renovations than you can make with the resale of the home.
Another risk of buying a fixer upper is that the home may be located in a declining area. While some fixer upper homes are located in desirable neighborhoods, many more are in areas where neighboring properties are also in disrepair. If this is the case, it will be difficult to sell your investment home, no matter how much time and money you have spent renovating the property.
Finally, you should be prepared for the risk that it may take quite some time to find a suitable buyer for the home, no matter what kind of neighborhood the property is located in. You will need to sell the home for substantially more than your purchase price, and buyers may be hesitant to pay much more for a home than it was worth six months or a year ago.