- Some of the best profits are made on homes that have deteriorated below neighbourhood standards and can be inexpensively refurbished.
- Cosmetic – as opposed to structural – improvements tend to be the most lucrative in the long run.
- For the best returns on a prospective fixer-upper, look for a safe suburb with reasonably high property values.
- Use a bond originator to help you apply for a home improvement or building loan tied to your bond.
Where most homebuyers want to purchase a home in mint condition (just turn the key and move straight in), the savvy bargain hunter who wants to make a tidy profit when selling will consider buying a “fixer-upper”.
“A good definition of a fixer-upper is a home that has been allowed to deteriorate below neighbourhood standards,” says Rhys Dyer, CEO of ooba, South Africa’s largest comparison service.
“One of the great aspects about buying a fixer-upper is that the purchase is not contingent on the temperature of the property market,” he adds. “Whether hot, cold or neutral – any time is a good time to buy a fixer-upper.”
If you’re considering investing in a home that needs TLC, these five tips can help you make the right choice:
1. Don’t spend too much
“The ideal fixer-uppers are those that require mostly cosmetic improvements – paint touchups, drywall repairs, floor refinishing – which generally cost much less than what they return in market value,” says Dyer, who notes that new lighting fixtures, doors and window shutters, as well as updated kitchens and bathrooms, are also lucrative improvements.
“When choosing a property to invest in, total up the estimated expenses for making repairs and add this number to the cost of the property. Then, be sure that you will be able to make a comfortable profit after all of these costs,” he advises.
2. Get a professional opinion
Some issues with fixer-upper investment properties can be more serious than they first appear. “If you don’t have a good eye for potential damage, such as structural issues, it’s a good idea to call in a professional to take a look,” Dyer suggests. “Although you will have to pay for an inspection, you can actually save a lot of money in the long run by knowing exactly what condition the house is in.”
3. Pay attention to location
Homes can be repaired and made to be worth much, much more than their current value, but the location isn’t something that can be changed. Along with looking for a house you can restore to make more valuable, you should also pay attention to the suburb it is in, Dyer advises. “For the best returns, look for a safe neighborhood with reasonably high property values. If, however, you do choose to invest in a fixer-upper that isn’t in the best of areas, you should keep this in mind when determining how much to spend on improvements.”
4. Roll up your sleeves
A lot of repairs can be very expensive when you factor in the cost of building materials and labour, Dyer warns. “Shop around for builders and handymen who will tackle the job at the most reasonable rates (and be sure to always ask for – and follow up on – references). At the end of the day, all the costs you cut during the restoration process will add to your bottom line later on.”
Better still, if you’re a dab hand with a hammer, do some of the work yourself. “This is one of the best ways to get the work done right while still saving money and, ultimately, turning over a higher profit,” he says.
5. Line up the money
One of the most challenging aspects of purchasing a fixer-upper is paying for the renovation, he admits. “Understandably, most people don’t have much extra cash after paying a deposit and transfer costs, so coming up with additional money to cover repairs or remodelling can be difficult.”
According to Dyer, one option for funding for a fixer-upper is to register a larger than required bond, creating a surplus amount that you can access for the desired renovation. “If your home loan lender offers this option, these loans can be borrowed against the home’s value after the work is finished, subject to credit approval. The quickest way to secure a loan for home improvements is to use your bond originator to apply for a re-advance of further loan from the applicable banks,” he adds.
ooba home loans will take care of all aspects of the application to ensure your loan is processed quickly, allowing you to focus on paint swatches and switch plates – all the things that will help turn a drab and dreary fixer-upper into your own personal palace, and, with any luck, make a nice profit in the process.
Alternatively, calculate the anticipated cost of these renovations, and build them into your savings budget, so you ensure you have enough cash on hand to pay for the renovations without borrowing the money.