Whether you’re a first-time home buyer looking for affordable entry into the Denver market or you’re a seasoned home-buying pro — you’re likely aware that fixer-uppers come with their own unique set of benefits and challenges. Buyers must weigh these pros and cons against each other to determine if snagging a deal on a project house makes sense for their situation and goals.
What Constitutes as a Fixer-Upper?
Traditionally, a fixer-upper is a property that is listed at a lower market price for a variety of reasons. These reasons typically include obvious repairs and renovations that need to be made structurally, as well as outdated features and systems that are due for an upgrade. Many potential buyers consider these “project” houses an investment into their future, whether as a first home for their family or a source of profit after a renovation. While not always the case, fixer-uppers are generally livable in their current state. They can still fall significantly short of what many buyers consider modern standards of living and comfort to be.
Potential buyers of fixer-uppers often include first-time homeowners looking for an affordable point of entry into the market, as well as investors looking to flip the property for a profit. Buyers who plan to gut and customize their new home to complement their lifestyle may also find that the more affordable upfront option is well-suited for this purpose.
If you’re considering a fixer-upper, be aware that while they can represent a smart financial investment for discerning buyers, they also come with risks that can put pressure on occupants. On the flip side, fixer-uppers can be a rewarding experience for those eager to tackle these challenges.
Top 4 Pros of Investing in a Fixer-Upper in Denver
Now that you know what a fixer-upper is, who’s buying these houses anyway? Well, the answer is multifaceted and in fact, fixer-uppers have an abundance of qualities that make them appealing to many individuals and families alike. Buyers willing to invest time, money, and effort into renovating a fixer-upper often find that they can save money upfront and build the home’s value over a period of time.
1. Lower Purchase Price
The most obvious advantage of fixer-uppers is their lower market prices. This provides a more affordable option for first-time homebuyers or buyers working within the constraints of a tighter budget. Buyers can benefit from multiple financial incentives when looking at fixer-uppers, especially when it comes to a higher-cost market such as Denver. A smaller upfront mortgage can equate to lower monthly payments and reduced interest over time. This can be helpful for buyers who are looking for a smaller down payment and who want to free up financial resources that can be used for renovations or other priorities — such as building savings, debt repayment, or other investments.
Remember, buying low provides you with the opportunity to build equity quicker than you would otherwise. The key to building equity is making renovation decisions wisely. For many savvy buyers, the “forced appreciation” aspect of investing in a fixer-upper property is a major selling point.
2. Decreased Market Competition
It’s no secret that the majority of buyers would prefer a home that’s ready to move into, otherwise known as a “turnkey” home. That means that there’s less competition fighting for fixer-upper houses, which can give interested parties more negotiating power. Narrowing the pool of buyers can work to your advantage, especially if you’re not one to shy away from a renovation. Not every buyer has the skill set, the budget, or the patience to fix up a fixer-upper.
Sellers of fixer-upper homes may be more flexible on the price or willing to make concessions — such as covering closing costs. The odds of this happening increase if the house has been on the market for a while. Buyers are also less likely to get into a bidding war or be faced with other aggressive tactics that can be common in hot markets. Another benefit to decreased competition is that buyers can take a breath to consider their decision before putting an offer down, rather than feeling rushed to compete with other buyers. Buyer’s remorse is incredibly common in the home buying process, with more than 75% of U.S. homeowners experiencing it to some degree in 2022.
3. Potential to Make It Your Own
If customization is important to you, then a fixer-upper may be the route best suited towards your aspirations for your home. Homeowners may find that they have increased potential when it comes to shaping aspects of their home to fit their needs, lifestyle, and aesthetic tastes. If the fixer-upper needs full-scale renovations anyway, buyers can project a blank canvas onto the house and make thoughtful decisions when it comes to room functions, finishes, fixtures, and more. Always wanted an open-concept kitchen with a sizable island? You can make it a reality!
For some buyers, this control over design and functionality without actually building a home from the ground up is one of the most appealing factors in putting in an offer on a fixer-upper. Whether you’re a growing family searching for a space to tailor to little ones or you want to skip the formal dining room and make use of a home office instead — the world is your oyster. Renovations require a budget, of course. If the funds are available, then you can flip what some may view as a “problem” into the rare opportunity to craft the home of your dreams instead of inheriting someone else’s vision.
4. Room for Substantial Equity Growth
Buying a home is an expensive decision. In fact, it’s the most expensive decision that many will make in their lifetime. Considering the financial implications of investing in a fixer-upper are at the top of many potential buyers’ minds and the potential for home equity growth is often declared as being a major deciding factor. To put it concisely, equity is the difference between the current market value of a home and what is still owed on the mortgage. Due to fixer-uppers being sold at a discounted price due to their condition, thoughtful renovations to improve the property can increase its market value — sometimes significantly!
Well-executed renovations are key, with popular value-boosting projects including kitchen remodels, basement conversions, and modernized bathrooms. Replacing the garage door or the home’s entry door has the potential to make a big impact per 2024 national averages, with a cost recouped rate of 188% and up! The potential to make meaningful gains in equity over a relatively short period draws many buyers into the realm of considering fixer-uppers, especially those concerned with financial security and building a cushion for potential market downturns in the future.
Top 3 Cons of Buying a Fixer-Upper in Denver
Now that you know the great potential that fixer-uppers can hold, it’s time to understand their drawbacks as well. Weighing both the advantages and disadvantages to make an informed decision is key.
1. Unexpected Costs
In a perfect world, you would have a fair understanding and accurate budget estimate for what renovations and repairs will cost. However, unexpected projects and costs that weren’t included in the budget always seem to pop up here and there. Whether you found outdated wiring or mold when you’re halfway into renovating the bathroom — these “surprises” have a tendency to jump out at you at inopportune times. It’s important to understand that home inspections may not catch everything and you’ll be left to write the check later on. Crafting a sensible budget with some wiggle room for the unexpected is non-negotiable when considering a fixer-upper home, as findings from the 2024 U.S. Houzz & Home Study show that renovation prices are on the rise.
2. Renovation Stress
Renovations can be time-consuming as well, which can further impact the livability of the home. Such challenges include permit delays, busy contractor schedules, or even supply chain issues that can test the patience of anyone. Occupants may find that living in a construction zone is less than ideal, which can add pressure and frustration to the situation. Depending on whether or not the fixer-upper was in livable condition or not, you may even be faced with the added costs of securing a temporary living situation while projects are underway. Short-term housing isn’t cheap — so consider this line item in the budget when weighing the pros and cons of buying a fixer-upper.
3. Resale Risk
While you read about the potential for rapidly increased equity growth above, it’s also paramount to understand that this is never guaranteed. Unseasoned buyers may overspend on renovations or fail to add value in the “right” places, such as the kitchen and bathroom, and as a result, may not see as strong of a return on their investment as they had hoped. Local markets can always shift and buying a fixer-upper may put you in a more precarious situation than you would have liked. Risk management is key in this area, which can be realized in a variety of ways discussed below.
Keep These PRO Tips in Mind When Considering a Fixer-Upper
On the one hand, buying a fixer-upper can be a smart investment that pays you back over the years. However, it can also be a major headache for unprepared buyers. The difference between the two comes down to smart preparation and risk management. Here are some key tips to keep in mind before and during the process of buying a home that needs a little love.
Secure a Professional Home Inspection
Hiring a reputable home inspector is important for any home purchase but it can be the difference between making a smart financial decision and being underwater on your purchase with a fixer-upper. Understanding the true condition of the property is critical, as many fixer-uppers have issues that may be virtually invisible to the untrained eye. Think of foundation cracks, plumbing leaks inside the walls, structural damage, and mold in the attic. Hire a professional inspector to uncover these issues before you commit, which allows you to gain confidence in the property’s true condition.
Consider Your Renovation Budget
The importance of being honest with yourself about your renovation limits and about a realistic budget to dedicate to these projects can’t be overstated. Many buyers are comfortable with cosmetic updates such as fresh paint and flooring — however, structural renovations that require permits and the like can compound difficulty and stress and are often out of the layman’s wheelhouse. The more you can DIY, the more you’ll save but it’s equally as important to know when to bring in the professionals to get the job done right the first time.
Work with an Experienced Team
Joining forces with a professional real estate team can provide several key advantages, especially for those who are unversed in navigating the unique challenges that these properties can throw at you. A skilled agent will be able to use their experience to assess a fixer-upper and identify which properties may be right for your goals and budget. Agents are familiar with local market conditions, which is priceless in cities like Denver where the market can be competitive. This expertise can prevent you from overpaying for a home that will inevitably require more work than it’ll be worth.
Emphasize the “Value-Add” Renovations
When planning out your budget for your fixer-upper, prioritize the additions and renovations that will add the most value to the home and its function — such as opening up the floor plan, remodeling the kitchen and bathrooms, updating the mechanical systems, and honing in on curb appeal. While it may be tempting to over-customize from the get-go, make sure you’re setting yourself up for success later on by adding equity and giving yourself a cushion.
Considering a Fixer-Upper? Your Trusted Denver Real Estate Team Wants to Help!
Whether you’re looking for a fixer-upper or a move-in ready home in Denver, our friendly, skilled, and professional team at RE/MAX Professionals would be happy to offer you a hand. For many, buying a home is the single largest financial purchase that they’ll make in their lifetime — so it’s paramount to have an expertise-backed team on your side!