Acquiring a fixer-upper to use as a Spokane Valley rental property can seem like an attractive option to many investors. The less you pay for a property upfront, the more likely it is to produce higher results when you sell it or rent it out. However, fixer-uppers come with their own set of potential downsides, including some that can turn a bargain property into a financial nightmare. Before making a decision, you should carefully consider if investing in a fixer-upper is worth it. Evaluating the possible risks and benefits can help you decide whether purchasing a fixer-upper to use as a rental property is the right choice for you.
The Pros
Instant equity is one of the reasons rental property investors choose to buy a fixer-upper property. Fixer-uppers typically sell at a lower price than houses in better condition. Because of this, they often increase in value quickly after some repairs and updates. If a property has a lower purchase price, it typically has a lower mortgage payment as well, resulting in higher net profit each month. You may also save on property taxes in the beginning since your first year or so of taxes are likely to be based on the property’s value when you bought it. When you add up all these things, you could get the highest possible return on your investment.
The Cons
Along with these benefits are a few drawbacks to buying a fixer-upper property. For one, assessing how much work needs to be done on a fixer-upper property to get it ready for a tenant can be difficult. Having a professional inspection can help. However, it may not always identify serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. Along with hidden costs, a fixer-upper can also be met with many delays as you work on the property. Your hired contractor might also find it hard to stick to an efficient timeline. If you are doing the work on the property yourself, it is important, to be honest about how long the planned renovation will be, as well as how much time you are willing to commit to the project. Longer repair works mean forfeiture of more potential rental income.
Is It Worth It?
Only you can say if buying a fixer-upper is worth it or not. Every rental property owner is different, as is every property. Assessing a particular situation and deciding if a fixer-upper property is a good fit for your skills and goals can be done by collecting the best information you can gather and conducting a thorough cost analysis based on it.
Research and compare several properties in the area to determine the property’s potential market value once the repairs are complete. Don’t forget to add up the total costs of buying and renovating the property. Be sure to include every expense, including closing and carrying costs (mortgage, insurance, utilities, and so on), as well as the cost of materials and labor for all planned repairs. Don’t forget to add 10% to 20% for unexpected expenses. Add up your total costs and subtract them from the estimated market value of the house. If your expected return is around 10% or higher, you might just have found a great bargain.
However, a fixer-upper isn’t always the best option. Some investors find that buying turn-key properties is a more efficient and effective way to increase your monthly investment income. This is especially true if the property you want to buy is in a higher-end neighborhood, is undervalued by the owner, or has other amenities that make it ideal for a rental property. If you’d rather avoid the hassle of construction, delays in leasing, and the costs of preparing a property for a tenant, then perhaps a fixer-upper property isn’t the right choice for you.
Since every situation is unique, the decision to buy a fixer-upper or not is something each individual investor must make. But you do not have to do it all alone. Real Property Management Spokane County has expert Spokane Valley 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 509-462-1042 today!
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