So, You’re Buying a Fixer Upper?
Financial Advice a Friend Would Give You…
A large part of this blog is to help my readers save money. One of the biggest reasons to purchase a fixer upper is just for that reason. However, don’t be fooled. Purchasing a fixer upper is an investment so choose wisely when you’re house hunting. And be sure that your projects will increase the overall value of the home. Here’s some tips for home buyers from things we have learnt through our own home purchases and renovations.
***DISCLAIMER: I do not represent any financial institutions, firms, or am any longer a licensed home loan specialist. This is just friendly advice and a few things to consider.***
Financial Advice 101
Fun fact. I’ve been working in the financial/banking industry the majority of my adult career. Banking is what I did before staying home to take care of our little one. And finance is something I am still passionate about. What I am more passionate about is, being wise with money and not just financing everything. I’m a banker’s worst nightmare… because what I’m about to tell you isn’t going to make them as much money.
He’s right… As Dave Ramsey would say, “Cash is King. Debt is Dumb.”
The reason we personally settled for a fixer upper is so we didn’t have to pay a huge mortgage… and we didn’t have to worry about additional home equity financing while fixing it up. We pay for the majority of our supplies in cash and we take our time to get things done. It takes time and sacrafice. At the end of the month we only pay on one loan–a modestly priced mortgage. While during renovations it can seem like we aren’t saving like we were prior we still don’t have massive amounts of debt… (like the majority of Americans). We have more freedom when we are spending less. And you do too. My best financial advice is find out what your means really is… and aim to spend even less. Don’t take out a massive mortgage just because you can. Live more freely by having room to breathe at the end of the month. It takes sacrifice but it is totally worth it.
Renovate the FINANCIALLY Smart Way
From my experience of working in the banking industry, when a banker hears you are wanting to work on a major home renovation they will likely refer you to a home equity line of credit (HELOC). A good banker should warn you that a HELOC can be very risky. In fact, HELOCs are sited to be one of the major reasons for the housing crisis in the early 2000s… the same financial crisis that caused many families to loose their homes!
What makes a HELOC so risky? Simply answered, it’s very easy to over spend on an open ended line of credit. When payback comes around you can easily find yourself scrapping the bottom of an empty barrel. Want more details? Here’s an article by Kerry Hannon from FORBES, explaining the risks associated with this type of financing, taken from his personal experience. It’s an easy read titled, Cautionary Advice On Getting A Home Equity Line.
So, How Do You Come Up With The Money?
The answer? Simply, budget. Find what you can cut out from your monthly spending and set aside for your project. Maybe that means spending less at Starbucks, not eating out, cutting cable, or selling items you aren’t using… (We did all of that.) Write down a budget and stick to it. Check out Dave Ramsey for more detailed advice.
Another budget related idea is to ask yourself, “What can I do myself and what do I need to have hired out?” Don’t take this the wrong way… contractors have a time and place. They are needed. If I could, I would hire out everything. However, when you are on a tight budget you learn very quickly that you can be just as effective in some areas. Maybe you can learn how to lay tile, paint, install flooring, or carpeting. We have taught ourselves so much simply by reading, watching, and asking the right questions.
One thing we taught ourselves and saved thousands DIY-ing is refinishing our hardwood floors.
***I recommend though if it can flood your house or burn down your house, you always hire a professional… A plumber and electrician are always a phone call away.***
Invest in the Neighborhood
What are your priorities? Hopefully, you aren’t reading this if you are looking to flip a house solely for profit. However, the neighborhood can determine much about your house and its resale value at the end of the day. If you’re looking to buy your first home be sure that you’ll be happy at that location. While your neighbors may not be perfect make sure you can learn to love them… Get outside, have conversations, and be friendly. There’s nothing worse than living where you feel unsafe, insecure, or just plain unhappy.
Here’s a list of questions about the neighborhood to answer before putting in your first offer:
1. Is the neighborhood safe for my family?
2. Is the neighborhood close to work, school, church, or other frequent destinations?
3. What are the neighbors’ homes like?
4. Is something going to drive you crazy or impact the resale value of the home?
5. Does the neighborhood seem welcoming?
6. Have I seen or been able to interact with any of the neighbors while looking at the home? How was that interaction?
Ask yourself some questions that are important to you. Being honest with yourself can save you stress and hassle later on if for some reason your answers are not what you hoped for. However, remember nothing is perfect and neither are you… so if it’s just small things that don’t make a huge difference be graceful and forgiving.
In closing, these are just a few things to consider when investing in a fixer upper. There are a lot more things to consider but these made my short list from our experiences. If you take anything from this little article it should be to do your research on the financial spectrum. It’s easy to get blindsided when purchasing a new home, fixer upper or not. Be wise when it comes to your finances and you can live a more peaceful life. For more ideas on budgeting, home investing, and budget design follow me on Pinterest and check out my Instagram Stories for weekly inspiration.