Buying a home that is in need of attention can be a highly beneficial investment, however, this is dependent on whether the purchaser takes the necessary precautions and follows the right procedures.
This is according Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says regardless of the kind of property that the buyer is choosing to invest in, it is important that they do the required research and lay down the groundwork before committing themselves to the purchase.
“This is especially important when looking for homes that would be considered as a fixer-upper, as the buyer will need to pay additional money into the property to renovate it.”
Knowing what is a good buy and what should be steered clear of is a key aspect to success when purchasing a fixer-upper property, says Goslett.
He says there are several advantages to purchasing a home that needs renovation.
“For many investors who have the capital to spend on renovating, purchasing a home in need of attention is a way to secure a higher profit margin when they sell the property at a later stage, provided, of course, that they are savvy with how much they spend fixing the property,” says Goslett.
He says another advantage is that there is often less competition in the market for these kinds of homes, which means that they generally sell for lower prices than most of the homes in the area.
This greatly increases their potential for return on investment, especially if they were bought at a good price.
According to Goslett, a property’s investment potential is largely based on the decisions that are made by the investor at the beginning of the transaction.
“Making the right decisions from the outset will give the purchaser the best chance of seeing a healthy return,” says Goslett.
“While the perfect home may be hidden under the guise of various unsightly essentials that would normally repel potential buyers, fixer-upper investors will need to see past the property’s outward appearance and envision the home’s true potential.”
Goseltt gives some tips for those looking for the ideal fixer-upper:
1. Location is always vital
No other aspect will have a greater impact on the property’s potential for appreciation in value than its location.
“All property professionals agree that location is the first thing that any property buyer should focus on. This is because a property’s location determines so much of its current value and growth in value in the future,” says Goslett.
He says from an investment perspective, homes that are in proximity to a range of amenities, such as shopping centres, entertainment areas and good schools, generally see a higher percentage of capital growth over the long term than those that aren’t.
2. How the home is designed
Renovating a home is one thing, but completely changing the design of the property can be very costly.
Goslett says this is why it is important that the shell of the home is designed well and laid out correctly. In some cases where rooms have been added at a later stage there can be a disconnection in the home’s layout if it was not properly thought out.
Sometimes it is better for buyers to walk away than to try to correct a bad design.
3. The overall condition of the home
While certain renovations are manageable, if there are too many defects or possible structural damages, the home may not be worth the money or the effort. A good fixer-upper is a home that is at least in a liveable condition.
“Cosmetic issues can easily be fixed, but major changes to the home’s structure or foundation take a lot more money and expertise. Homes with these sorts of issues will be a money-trap rather than a good investment,” says Goslett.
He says as with any investment, it is always better to gather as much information as possible in order to make an informed decision that will pay off in the long run.
Buyers who are unsure of anything should seek the advice of a reputable contractor to ensure that the home is structurally sound.
“It’s better to go into an investment with both eyes open, than blindly hoping for the best,” says Goslett.