Investing in a fixer-upper to utilize as a Lynchburg rental property can definitely be a perfect option for lots of investors. Because after all, it is generally true that the less you pay for a property upfront, the more likely it is to produce higher returns both month-to-month and once you sell. But take note, fixer-uppers also come along with a host of possible downsides, some of which can swiftly turn that bargain property into a financial nightmare. Before you finally decide to invest in a fixer-upper, it’s relevant to seriously evaluate whether buying one is worth it. After taking into consideration both the potential risks and benefits, you can more smoothly and confidently decide whether buying a fixer-upper to use as a rental property is the right move for you.
The Pros
One of the huge reasons that rental property investors opt to buy a fixer-upper property is instant equity. Due to the fact that fixer-uppers most often sell at a lower price than houses in better condition, they oftentimes increase in value quite quickly with some repairs and updates. A lower purchase price furthermore normally equals a lower mortgage payment, bringing on the higher net profit each month. You may as well save on property taxes, in the beginning, considering that your first year or so of taxes may generally be based on the property’s value when you bought it. All of these things can add up to the highest possible return on your investment.
The Cons
Together with the potential benefits, there are, admittedly, a few drawbacks to purchasing a fixer-upper property. For example, it can be complicated to assess just how much work a fixer-upper property will need before it’s ready for a tenant. Bringing about a professional inspection can help greatly, however, it may not, all the time, unmask serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. In keeping with hidden costs, a fixer-upper can equally get mired in delays as you get the relevant work done. If you’re authorizing a contractor, it may be toilsome to get them to comply with an efficient timeline. If you’re doing some or all of the work yourself, it’s vital to be honest with respect to how much time your considered renovations will take and how much time you have to commit to the project. The longer repairs keep on, the more potential rental income you will fail to gain.
Is It Worth It?
The answer to whether obtaining a fixer-upper is worth it or not is one that only you can answer. Every rental property owner is different, as is every property. To help assess a particular situation and make up your mind if a fixer-upper property is a right fit for your skills and goals, it’s necessary to conduct a meticulous cost analysis based on the best information you can procure.
After researching and determining several comparable properties in the area, note what you think would be the property’s market value after the repairs are totally completed. And then, add up the total costs of buying and renovating the property. Make certain to count every expense, just as closing and carrying costs (mortgage, insurance, utilities, and so on), also the cost of materials and labor for all planned repairs. Furthermore, add an extra 10% to 20% for unpredicted expenses. With your total costs in hand, subtract them from the estimated market value of the house. If your expected return is around 10% or higher, you might just have gotten yourself a very good bargain.
But of course, a fixer-upper isn’t always the right move. For some investors, buying turn-key properties can be a more efficient but just as effective approach to increase your monthly investment income. This is precisely true if the property you want to procure is in a higher-end neighborhood, is undervalued by the owner, or has other amenities that make it spot on for a rental property. If you’d rather keep yourself very far away from the hassle of construction, delays in leasing, and the costs of preparing a property for a tenant, then maybe a fixer-upper property isn’t the good call for you.
Considering that every situation is different, the choice to get a fixer-upper or not is one each investor must make. However, be encouraged, that doesn’t mean you need to make it alone. Real Property Management Cairn has expert Lynchburg property managers to assist investors like you in preparing market analysis, setting rental rates, and locating potential properties for sale. Would you like to learn more about what we have to offer? Contact us online or call at 434-215-3028 today!
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
