The Pros
One of the greatest reasons that rental property investors like to buy a fixer-upper property is instant equity. On account that fixer-uppers usually sell at a lower price than houses in better condition, they increase in value sort of quickly with only a few repairs and updates. A lower purchase price additionally generally equals a lower mortgage payment, causing higher net profit each month. You may equally save on property taxes, in the beginning, owing to the fact your first year or so of taxes will tend to be based on the property’s value when you bought it. All of these things can add up to the highest possible return on your investment.
The Cons
But certainly, with the potential benefits, there are a few drawbacks to obtaining a fixer-upper property. As an example, it can be rather difficult to assess just how much work a fixer-upper property will need before it’s ready for a tenant. Performing a professional inspection can help although it may not frequently expose serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. Apart from hidden costs, a fixer-upper can furthermore get mired in delays as you have the much-needed work done. If you’re recruiting a contractor, it may be burdensome to get them to keep an efficient timeline. If you’re doing some or all of the work yourself, it’s relevant, to be honest regarding how much time your projected renovations will take and how much time you have to commit to the project. The longer repairs grind on, the more potential rental income you will lose out on.
Is It Worth It?
The answer to whether acquiring a fixer-upper is worth it or not is one that only you can answer. Every rental property owner is different, as is every property. To help assess a specific situation and determine if a fixer-upper property is an appropriate fit for your skills and goals, it’s crucial to conduct an extensive cost analysis based on the best information you can glean and gather.
After researching and determining several comparable properties in the area, figure out what you consider would be the property’s market value after the repairs are accomplished. Furthermore, add up the total costs of buying and renovating the property. Ensure to number every expense, plus the closing and carrying costs (mortgage, insurance, utilities, and so on), also the cost of materials and labor for all intended repairs. Subsequently, add an extra 10% to 20% for those unexpected expenses. With your total costs in hand, subtract them from the estimated market value of the house. If your expected return is around 10% or higher, you might just have found yourself a perfect bargain.
But, however, a fixer-upper isn’t frequently a wise decision. For some investors, buying turn-key properties can be a more efficient but just as effective technique to increase your monthly investment income. This is exactly true if the property you want to purchase is in a higher-end neighborhood, is undervalued by the owner, or has other amenities that make it appropriate for a rental property. If you’d rather steer away from the hassle of construction, delays in leasing, and the costs of preparing a property for a tenant, then quite possibly a fixer-upper property isn’t the right thing for you.
On the account that every situation is different, the choice to get a fixer-upper or not is one each investor must make. But be encouraged, that doesn’t mean you need to make it alone. Real Property Management Northwest Chicago Suburbs has expert Algonquin property managers to assist investors like you in preparing market analysis, setting rental rates, and locating potential properties for sale. Would you like to learn more about what we have to offer? Contact us online or call at 847-892-4040 today!