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If you’re looking for an affordable home, buying a fixer-upper can be a smart way to save money. But it can also be a money pit if you don’t know what to look for. Here’s how to find a home worth investing in.
What is a fixer-upper?
A fixer-upper is any type of home that needs repairs, renovations, or significant work before it’s move-in ready. Move-in ready (also called turnkey) homes don’t require the renovations that fixer-uppers do. With a turnkey home, the previous owner has made the necessary repairs before you purchase the home and life in your new home can start as soon as you move in. Fixer-uppers typically cost significantly less, but they require time and money to renovate. Fixer-uppers can be old homes, historic homes in need of updates, or newer properties that still need work done.
Pros and cons of buying a fixer-upper
It often costs less. Because of the money and effort needed to revive the home and make it livable, fixer-uppers are usually 8-10% less expensive than move-in ready homes. In some cases, they’re half the price.
Control over design decisions. If you love the idea of building your home from the ground up but you have a tight budget, a fixer-upper might be right for you. You can customize a home as you improve it – making choices about paint colour, room size, number of bathrooms, and more. Sure, you can make changes to a move-in ready home, but you’ll have spent more on the home itself and might not have as much wiggle room for renovation costs.
Less competition. In general, you’re less likely to experience a bidding war with a fixer-upper than you are a move-in ready home.
It can be a good investment. If you’re smart about renovations, a fixer-upper can be a great way to improve the value of a home and sell it for more than you bought it for.
Surprise costs. Renovation costs for fixer-uppers tend to exceed expectations. It’s hard to plan for all potential expenses with any home purchase, but fixer-uppers are especially prone to curveballs.
Unforeseen issues. Even with a proper inspection, fixer-uppers are more likely to have hidden complications than move-in ready homes.
Longer timelines. Renovations can drag on because of supply chain issues or construction delays, lasting months or sometimes years.
How can I tell if a fixer-upper is a good investment?
Some simple math is a great place to start. Get to know the local market to establish what comparably sized move-in ready homes are selling for, and subtract the price of your home. For example, if a similarly-sized house in the same neighbourhood is selling for $800,000 and your fixer-upper costs $500,000, the difference in cost is $300,000. How much will your renovations realistically cost? Add your estimated renovation costs to the cost of the home you’re looking at — while leaving some wiggle room for surprise costs. If the total estimated cost after renovations is well below the average selling price of a local home, it could be a smart buy. Your financial advisor and real estate professional can help you weigh your options in more detail.
What should I consider when I’m comparing a move-in ready home vs. a fixer-upper?
- What’s your lifestyle? Consider how the time investment that fixer-uppers require fits into your everyday life. Even if you’re not doing the renovations yourself, you’ll need to hire contractors and make decisions about your new home. Families with young children or busy schedules might find year-long renovations challenging. If you’re working a full-time job at home, extended repairs or surprises could impact your ability to have the space you need to do your job.
- Look at the practical costs of the renovations needed. The cost of construction and goods has gone up significantly over the last few years in Canada. Do your own research to figure out how much materials and labour will cost, and ask contractors for quotes so you have a realistic picture of what you’d be spending.
- Are the needed renovations cosmetic or structural? Cosmetic changes can be an easy value-add. If the outdated paint colour or off-putting vintage tile on an older home is driving down its value, modern cosmetic updates could be an affordable fix. Structural changes — like a new roof or a shifting foundation — tend to cost more, and require longer wait times than aesthetic changes.
- Look up tax credits and incentives in your province. The Canada Greener Homes Initiative offers grants and incentives for insulation, windows and doors, heating and cooling, renewable energy and more.
- Determine your budget and stick to it. Use your preapproval and a clear financial plan to make sure you don’t overbid or end up making an emotional choice.
OJO can help you navigate home buying
From saving to selling, buying and back again, we’re there to guide you through all the twists and turns along the way. With OJO you can personalize your search by selecting the home features most important to you and get connected to our dedicated team of experts who offer support from initial planning to moving day and beyond.