Buying fixer-uppers can seem like a good option to many investors who want a Cutler Bay rental property. After all, the less you pay for a property upfront, the more likely it is to produce higher returns once you rent or sell it. However, fixer-uppers also have potential downsides, some of which can turn that 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
Most rental property investors choose to buy a fixer-upper property for instant equity. Since fixer-uppers usually sell at a lower price than other properties in good condition, they often increase in value quickly with a few repairs and updates. A lower purchase price also usually comes with a lower mortgage payment, 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 example, it can be hard to assess just how much work you have to do on a fixer-upper property before it is ready for a tenant. 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. Aside from hidden costs, delays due to necessary works are also a problem with fixer-uppers. It can make it hard for your contractor to stick to an efficient timeline. If you plan to undertake all or some of the work yourself, you have to be honest and realistic about the duration of your planned renovations as well as how much time you can commit to the project. Remember that you will be forfeiting more potential rental income the longer the repairs take.
Is It Worth It?
It is entirely up to you to decide if buying a fixer-upper is worth it. Every rental property owner is different, as is every property. To help assess a particular situation and decide if a fixer-upper property is a good fit for your skills and goals, you should gather as much information as you can and conduct a thorough cost analysis.
Research and locate comparable properties within the area to determine what your property’s market value will be after all repairs have been completed. Then, 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. Most investors allocate an extra 10% to 20% to cover any unexpected expenses. Take 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. For some investors, buying turn-key properties can be a more efficient but just as 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 Genesis has expert Cutler Bay 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 786-744-5700 today!
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