What do you Need to Know about Investing in a Fixer-Upper Property?

Investing in a fixer-upper property can come with a high amount of risk. On one hand, you may find that you have the opportunity to buy a property at a discount and this can be great if you want a lot of room to make a profit. On the other hand, you may find that if you do not make good decisions, you are simply unable to recoup your money. If you want to give yourself the highest chance of success, then this is the guide for you.

Focus on Cosmetic Fixes

When you look at a home that is a fixer-upper, you may find that some properties need cosmetic work as opposed to having structural work done. If you buy a home that needs cosmetic work done then you can usually sell it at a good price, meaning there is more room for profit. If you buy a home that needs some structural work doing, then this can limit your profit and it may even end up swallowing way more of your money than you’d think. If you want to get around this, then always have a surveyor look at the property so you can make yourself aware of any potential problems with the structure, or hidden surprises with the foundation.

Contractors are Expensive

Another thing that you should know about buying a fixer-upper is that contractors can be expensive. If you want to get the best result out of your investment, then you need to try and enquire about their services before you commit to the property. This will give you a guideline price of how much things are going to cost, so that you can budget for the price of the property itself. If you can do a lot of the work yourself then this is great, but you will need to account for the cost of materials. This can include wood, piping, paint, plaster or even glue. If you can, try and seek out sites or stores that are able to give you a good deal, well in advance so that you can make the most out of your budget. If you need glue or related supplies then Glue Guns Direct are a good option. It’s also a good idea for you to keep track of your expenses, as you may be able to claim this back through your tax.

Reserve some Money

When you buy a fixer-upper, you have to make sure that you have enough money in reserve. It doesn’t matter how much you look at a property before you buy it, because when you start working on it, you may find that you experience issues that you have never seen before. You may also find that things end up taking a turn for the worst when you end up trying to DIY some of the jobs, so it’s always helpful to keep a good amount of your money in reserve if possible. If you can do this, then you will soon find that it is more than possible for you to get what needs to be done, under budget.

Consider Private Lending

Getting an investment mortgage can be difficult, depending on the area that you live in. Many lenders are reluctant to lend on properties that need some kind of work. If you are unable to get a loan from your bank, then you may want to go to the private lending market. Of course, private lenders are also known as being hard-money lenders and they will usually give you money even though your bank won’t. They do however usually charge you a much higher interest rate. Usually, you will need to put down a deposit as well. If you feel as though this is a good option for you then you may find that you can make your fixer-upper more profitable as you can get the whole job done in a very respectable amount of time.

Holding Long-Term

If you hold on to your asset for under a year then you may have to pay capital gains tax at a marginal income rate. If you want to try and take advantage of the lowered capital gains rate, then you will need to hold onto the property for more than a year. If you want to make sure that you get the best result out of your property then it is wise for you to hire an accountant. When you do, they can then work with you to make sure that you are able to capitalise on the most profit for your property.

Have Multiple Exit Strategies

Fixer-uppers are really only good investments if you are able to get your money back. If you want to boost your chances of making your investment successful, then you need to make sure that you have a primary exit strategy and then a secondary exit strategy. If you can’t sell the property, then you will be stuck with it, and this is the last thing that you need. If you are unable to sell the property, then you may find that renting it out is an option. Either way, don’t go into your investment thinking that you will be able to sell it immediately after because if you do, then you may find that you end up in a bad situation financially.

Start with a Single Property

If you can, you also need to make sure that you start with a single property. If you try and start with multiple properties, then you may think that this gives you more security as you’ll have a portfolio, but this is not the case at all. In fact, you’ll be putting yourself at far more risk than you realise. If you want to work around this then you need to try and buy your initial investment property, and then sell it for a profit. When you’ve done this, use the profit towards your second property, and so forth until you are able to get two properties at the same time without putting yourself at the risk of financial ruin.