Acquiring a fixer-upper to utilize as a Delta rental property can seem to be a good option to various investors. At any rate, it is usually true that the less you pay for a property upfront, the more likely it is to produce higher returns both month-to-month and once you sell. But really, fixer-uppers come with a host of possible downsides, some of which can make that bargain property into a financial nightmare. Before you choose to invest in a fixer-upper, it’s significant to look into whether buying one is worth it. After weighing both the potential risks and benefits, you can more aptly choose whether possessing a fixer-upper to use as a rental property is a good call for you.
The Pros
One of the major rationales that rental property investors prefer to buy a fixer-upper property is instant equity. Seeing that fixer-uppers frequently sell at a lower price than houses in better condition, they most often increase in value quite quickly with just a couple of repairs and updates. A lower purchase price also generally equals a lower mortgage payment, which leads to higher net profit each month. You may furthermore save on property taxes at the beginning due to the fact that your first year or so of taxes have a tendency 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
Aside from the potential benefits, there are a few drawbacks to acquiring a fixer-upper property. Take one example, it can be arduous to assess just how much work a fixer-upper property will need before it’s ready for a tenant. Executing a professional inspection can help, definitely, but may not oftentimes find serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. Together with hidden costs, a fixer-upper can additionally get mired in delays as you get the vital work done. If you’re enlisting a contractor, it may be quite hard to get them to stick to an efficient timeline. If you’re doing some or all of the work yourself, it’s imperative to be honest with how much time your planned renovations will take and how much time you have to commit to the project. The longer repairs drag out, the more potential rental income you will fail to get.
Is It Worth It?
The answer to whether investing in 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 particular situation and check if a fixer-upper property is a proper fit for your skills and goals, it’s vital to conduct a detailed cost analysis based on the best information you can get together.
After researching and identifying several comparable properties in the area, identify what you deem would be the property’s market value after the repairs are done. Also, add up the total costs of buying and renovating the property. See to it to include and list every expense, as well as closing and carrying costs (mortgage, insurance, utilities, and so on), additionally the cost of materials and labor for all prepared repairs. Finally, add an extra 10% to 20% for sudden 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 an excellent bargain.
But definitely, a fixer-upper isn’t usually a good call. For some investors, buying turn-key properties can be a more efficient but just as effective measure to increase your monthly investment income. This is specifically true if the property you want to obtain is in a higher-end neighborhood, is undervalued by the owner, or has other amenities that make it befitting for a rental property. If you’d rather shun the hassle of construction, delays in leasing, and the costs of preparing a property for a tenant, then a fixer-upper property isn’t the proper choice for you.
By reason that every situation is different, the ultimate choice to procure a fixer-upper or not is one each investor must make. But take heart, that doesn’t mean you need to do it alone. Real Property Management Now has expert Delta 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 970-314-7123 today!
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