Purchasing a fixer-upper to make use as a Beech Grove rental property can look like a nice option to countless investors. In the end, it is frequently true that the less you pay for a property upfront, the more likely it is to produce higher returns both month-to-month and once you sell. But on the other hand, fixer-uppers accompany a host of probable downsides, some of which can change that bargain property into a financial nightmare. Before you make up your mind to invest in a fixer-upper, it’s essential to think of whether buying one is worth it. After studying both the potential risks and benefits, you can more favorably decide whether getting a fixer-upper to use as a rental property is the right thing for you.
One of the biggest explanations that rental property investors choose to buy a fixer-upper property is instant equity. Since fixer-uppers usually sell at a lower price than houses in better condition, they typically increase in value quite quickly with a few more repairs and updates. A lower purchase price likewise frequently equals a lower mortgage payment, resulting in higher net profit each month. You may additionally save on property taxes at the beginning for the reason that your first year or so of taxes are inclined to be based on the property’s value when you bought it. All of these things can add up to the highest possible return on your investment.
Besides the potential benefits, there are a few drawbacks to investing in a fixer-upper property. By way of example, it can be tedious to assess just how much work a fixer-upper property will need before it’s ready for a tenant. Doing a professional inspection can help but admittedly may not always discover any serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. On top of hidden costs, a fixer-upper can similarly get mired in delays as you get the needed work done. If you’re employing a contractor, it may be difficult to get them to adhere to an efficient timeline. If you’re doing some or all of the work yourself, it’s significant, to be honest as to how much time your intended renovations will take and how much time you have to commit to the project. The longer repairs keep going, the more potential rental income you will lose.
Is It Worth It?
The answer to whether possessing a fixer-upper is worth it or not is one that only you can answer. Every rental property owner is different, as is every property. To help assess a certain situation and come up with a decision if a fixer-upper property is a real good fit for your skills and goals, it’s relevant to conduct a complete cost analysis on the basis of the best information you can get.
After researching and discovering several comparable properties in the area, find out what you perceive would be the property’s market value after the repairs are accomplished. Later, add up the total costs of buying and renovating the property. Always make sure to list every expense, along with closing and carrying costs (mortgage, insurance, utilities, and so on), including the cost of materials and labor for all proposed repairs. Furthermore, add an extra 10% to 20% for abrupt expenses. With your total costs in hand, subtract them from the estimated market value of the house. If your expected return is around 10% or higher, you might just have spotted a nice bargain.
But on the flip side, a fixer-upper isn’t always the right thing. For some investors, buying turn-key properties can be a more efficient but just as effective method to increase your monthly investment income. This is particularly true if the property you want to acquire is in a higher-end neighborhood, is undervalued by the owner, or has other amenities that make it best for a rental property. If you’d rather steer clear of the hassle of construction, delays in leasing, and the costs of preparing a property for a tenant, then possibly a fixer-upper property isn’t a great choice for you.
Since every situation is different, the choice to purchase a fixer-upper or not is one each investor must make. Though that doesn’t mean you need to make it alone. Real Property Management Indianapolis Edge has expert Beech Grove 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 317-420-8500 today!
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