Getting a fixer-upper for a Peachtree Corners rental property seems like a great deal. It is not surprising as the less you pay for a property upfront, the more likely it is to produce higher returns once you sell it or rent it out. However, fixer-upper properties have potential downsides, too, even some that can turn a bargain property into a financial nightmare. Before investing in a fixer-upper, it is important to consider if buying one is worth it. Evaluate both the potential risks and benefits so you can easily decide if purchasing a fixer-upper to use as a rental property is the right option for you.
The Pros
Rental property investors often 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. A lower purchase price also means 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. Considering all these, you can potentially get the highest possible return on your investment.
The Cons
Together with these benefits are a few drawbacks to buying a fixer-upper property. For example, it is difficult to fully assess how much work needs to be done on a fixer-upper property before it will be ready for a tenant. Having a professional inspection can help but may not always catch 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 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 repairs mean you would be forfeiting more potential rental income as well.
Is It Worth It?
The only person who can answer if buying a fixer-upper is worth it or not is you. 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. Once you have computed the total cost, deduct this 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.
Every situation is unique, and the decision to acquire a fixer-upper or not is something each investor must make. But you do not have to make that decision alone. Real Property Management Greenway has expert Peachtree Corners 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 770-364-9668 today!
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