Unlocking Value: Buying a Home That Needs Repairs

In today’s housing market, where inventory remains tight and home prices continue to rise, buyers may feel squeezed out of opportunities to find their dream home. However, there’s a growing trend that’s gaining attention: buying fixer-uppers, or homes that need some level of repair or renovation. These properties are generally more affordable than move-in ready homes, but they also require careful evaluation. For buyers willing to put in the time and effort, purchasing a fixer-upper can be a strategic move with significant potential benefits.

The U.S. housing market has faced a significant inventory crunch in recent years. According to Zillow’s 2024 Housing Forecast, a combination of high mortgage rates and economic uncertainty has discouraged many sellers from listing their homes, contributing to a persistent shortage of available properties. In this environment, fixer-uppers stand out as a viable option for buyers who might otherwise struggle to compete for a limited supply of turnkey homes.

Fixer-uppers typically offer lower asking prices because they require repairs or updates to become fully habitable. This price advantage can be particularly attractive in areas where home prices continue to rise, providing a more accessible entry point for first-time buyers or those on tighter budgets. However, while a lower price may seem like an immediate win, buyers should consider both the scope and cost of the repairs needed before committing.

When considering a fixer-upper, the key to making a sound investment is careful inspection and evaluation. Buyers should always begin by hiring a professional home inspector to evaluate the property’s structural integrity, plumbing, electrical systems, and other essential features. Issues such as outdated bathrooms or cosmetic flaws can often be dealt with relatively easily, but major problems such as foundation damage, electrical hazards or severe mold infestation can quickly drive up renovation costs.

Buyers also need to be realistic about the time and energy they can devote to home improvements. While some projects, such as repainting walls or replacing fixtures, can be done by homeowners, more complex work may require professional contractors. Having a clear understanding of what work needs to be outsourced and what can be done yourself will help avoid costly surprises later in the renovation process.

For many buyers, one of the biggest questions is whether buying a fixer-upper will make financial sense in the long run. The price reduction of a fixer-upper may not always translate into savings if the cost of repairs overshadows the initial discount. However, according to Zillow data, homes that need moderate upgrades can sell for about 3.1% less than comparable properties in good condition. If renovations are done strategically, buyers can not only recoup their investment, but also increase the home’s value over time.

In addition, homeowners who are willing to invest in incremental renovations often find that they can customize the home to their exact specifications. Over time, the property can become both a personal refuge and a valuable financial asset, especially in areas where home values are expected to continue to rise.

An added benefit of buying a fixer-upper in today’s market is the growing trend of do-it-yourself home improvement. Many new homeowners, especially those looking to save on renovation costs, are taking on simple projects themselves. From updating kitchens and bathrooms to landscaping yards, the rise of online tutorials and easy access to materials at home improvement stores has empowered buyers to take charge of their renovations. Zillow’s 2024 Housing Insights suggest that the popularity of DIY projects will continue to grow as more homeowners opt to renovate rather than sell.

For those who enjoy hands-on work, a fixer-upper is an ideal opportunity to add personal touches to a home while potentially increasing its market value. However, it’s important to plan and prioritize projects based on necessity, safety and budget.

Buying a fixer-upper is not without its challenges, but for those willing to embrace the process, it can be an excellent opportunity in a competitive housing market. With lower purchase prices, the potential for customization, and the possibility of long-term financial gains, these homes offer a unique pathway to homeownership. However, it is crucial to carefully assess the property’s condition and have a clear plan for the repairs needed. With proper planning, a fixer-upper can transform from a project into a rewarding investment.