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Is That Fixer-Upper Worth It?

Round Rock Property Manager Renovating a Rental Property KitchenBuying a fixer-upper for a Round Rock rental property can be a good option for 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 you invest in a fixer-upper, it is important to ascertain whether buying one is worth it. Once you have evaluated both the risks and benefits, you can easily 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. Most of the time, fixer-uppers often sell at a lower price than their counterparts that are in better condition, so they increase in value fairly quickly after a few repairs and updates. You could also gain a higher net profit each month since a lower purchase price usually equals a lower mortgage. 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. Given all these, 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, it is not easy to assess how much actual work a fixer-upper property will need before it is ready for a tenant. Even a professional inspection, which is helpful, cannot always identify serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. Aside from having hidden costs, working on a fixer-upper can also mean many delays. Your hired contractor might have difficulty sticking to an efficient timeline. If you plan to do all or some of the work yourself, you must be honest about how long the planned renovations will take and how much time you can commit to the project. The longer the repairs take, the more potential rental income you will lose.

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. To help assess a particular situation and decide if a fixer-upper property is a good fit for your skills and goals, it’s important to conduct a thorough cost analysis based on the best information you can gather.

Research and compare several properties in the area to determine the property’s potential market value once the repairs are complete. 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. Allocate an additional 10% to 20% for unexpected expenses. You can then subtract the total costs 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.

But not at all times will a fixer-upper be the right choice. 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.

Each scenario is different, so it is really up to each investor to make the decision to buy a fixer-upper or not. But that is a decision you don’t have to make alone. Real Property Management Longhorn has expert Round Rock 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 512-580-3099 today!

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