I’m moving off-campus this year, and my parents have decided they want to buy a piece of property. They said I can live in it and get a few roommates, who will pay rent. After I graduate, my parents plan on continuing to rent out the house. I’m in charge of picking out the property. Since the winters can get pretty rough here, I want a location that is within walking distance, so I don’t have to drive when it gets dangerous. Most of the houses near campus are real fixer-uppers, though. Is it worth buying a house like that? Should I even suggest those houses to my parents?
Written by John Regan, former Director of Sales, for equity research.
Deciding between a new house or a fixer-upper is such a common quandary that we now even have reality TV shows about it! There are all sorts of websites out there that discuss the pros and cons of both fixer-uppers and move-in-ready or new homes.
Move-in ready homes do have their advantages. Newer homes won’t have lead-based paint, they’ll usually be built to code, and all the plumbing and wiring will be good to go. Even older homes that have been renovated probably meet the safety and functional standards that will save your parents a lot of hassle. A newer house might save you money on energy costs and maintenance. Some newer houses are even cheaper than older ones, depending on how they’re built and where you’re living.
Getting a fixer-upper could be a great investment for your parents. According to the professionals from Dacor, upgrading the house will add value to it, so if you parents decide to eventually sell, they will return a profit. Check out what level of work needs to be done. If it’s along the lines of new carpet, windows, or basic upgrading, it might be worth it. If the house needs more serious structural work, it’s probably going to be too expensive of an investment, especially if it’s just a rental property. Getting a fixer-upper is going to be a time investment as well as a monetary one. If you or your parents or your friends are at all inclined towards construction, you and your proposed roommates might volunteer your services. If you work over a holiday break to help the fixing-up process; you could save your parents in labor; while contractors do save time and hassle, they charge a fee of anywhere from 15% to 30% of the remodeling cost. Your friends might be able to work out a lower-rent deal for while they help out with the work.
Either way you go, your parents will need to look into getting a loan. If you’re in a small town or a suburb, experienced mortgage lenders will suggest looking into a USDA Home Loan. These are loans backed by the government and have lower fees. Your parents might also look into getting a mortgage from their bank. There are also loans and mortgages available for home renovations.
There’s no harm in discussing this with your parents. Ask them what their budget is, and go from there. You might help them out a little by taking the initiative to talk to a real-estate agent about the cost of the house versus the cost of the work needing to be done. The major question is going to be if the cost of buying a fixer-upper plus the work and materials you’ll need to update it is really going to be cheaper than buying a house that’s already ready to go.
The ornament of a house is the friends who frequent it. ― Ralph Waldo Emerson