Fixer-Upper House: Is it Worth It?

By Bobbi Dempsey | April 02, 2010 AAA

In the wake of the housing market implosion, the number of foreclosures continues to rise. Many of these homes have fallen into disrepair. Even many homeowners who have (barely) managed to stay out of foreclosure often can't afford to keep up with their home's maintenance. Bottom line: there are a ton of fixer-uppers out there right now. At first glance, the low price on a fixer-upper may seem irresistible. However, the "handyman special" that seemed like a great deal can quickly become a money pit. Before you jump at a bargain-priced home, make sure you know what to look for. Here are some common pitfalls and red flags often found in fixer-uppers.

In Pictures: Home Renovations That Don't Pay

Outdated Electrical Systems
Rewiring an old home is no small task. Look for numerous electrical cords, which is often a clue that the electrical system is outdated and can't handle the typical power needs of a modern family.

"Today's electrical needs have grown significantly and, as a result, the home could require an entire electrical upgrade to meet these new demands,'" says Kathleen Kuhn of HouseMaster, one of the largest home inspection firms in the U.S.

In addition to the inconvenience of an old wiring system, a house with old "knob-and-tube" (generally found in homes built between 1890 and 1930) wiring may not be insurable, as some insurance companies see this as an increased risk. (For related reading, see Insurance Tips For Homeowners.)

While all buyers should get a home inspection before committing to a deal, Kuhn says an inspection is especially important with fixer-uppers, where buyers can easily overlook seemingly minor details that, to a trained professional, would be an obvious cause for concern.

Low Water Pressure
"If you turn on the faucet and the pressure is low, it could be evidence of a problem with older galvanized piping or inadequate piping," Kuhn says.

This is the type of problem that can range from a minor annoyance to a big, expensive headache. The only way to know for sure is to have a professional take a look and evaluate the type and age of the piping. While it's possible an entire new plumbing system may be needed, "in many instances, sections of piping can be replaced on an as-needed basis," Kuhn says. (For more on the home inspections process, check out Do You Need A Home Inspection?)

Horizontal Foundation Cracking
This problem is the basis of many fixer-upper horror stories because it is so costly and time-consuming to correct.

"Vertical cracks are, for the most part, within normal tolerances," Kuhn says. "Horizontal cracks are not. A horizontal crack generally results from hydrostatic pressure against the home's foundation. Correction will often involve excavation and drainage provisions, as well as repairs to the wall itself."

If you spot horizontal cracking, have a structural engineer inspect the property before you go any further.

Less-Than Ideal Location
As nearly everyone knows, the golden rule of real estate has always been "location, location, location." But in these economic times, that's more important than ever, says Anne Loveland of Loveland Carr Properties, a large Coldwell Banker real estate agency in Southern California.

"These days, cities and neighborhoods don't have the money to add new stores or make improvements. You can't count on that, so make sure you love the location as it is right now," Loveland said. (To learn more, read Top 4 Things That Determine A Home's Value.)

Water, Water, Everywhere
If water is getting into a house, rest assured you'll have bigger problems such as water damage and mold, which can be difficult and costly to repair.

"Water is the root of all evil," says Loveland. "Whether it's in the yard or basement - which can signal a drainage problem - or on (or coming through) the roof, water often signifies a problem that, even if it's not a serious issue, will probably be an ongoing annoyance."

Signs of Sabotage
If the bargain property you're considering is involved in a foreclosure or eviction, the former occupants may have expressed their frustrations by damaging the house. This may simply be a cosmetic issue - former owners frequently strip appliances, and light fixtures and cause minor damages - but it's not uncommon for disgruntled tenants/owners to cause more serious and insidious damage before they leave. If any damage is suspected, be sure that your inspector turns the house upside down for signs of secret sabotage.

The Bottom Line
When considering buying a fixer-upper, it's important to know what you're getting into. A maintenance issue may not automatically be a deal breaker, but it warrants serious thought. For one thing, a loan is tough enough to get right now, even for a home is pristine condition. And besides the financial issue, a major repair project can also be a stressful, time-consuming endeavor. However, if that doesn't discourage you, your timing couldn't be better. Inventory is nearly unlimited.

Loveland says, "If you have the money, you can have your pick - there are a lot of houses out there, and everyone is eager to make a deal."

(Catch up on this week's top financial news in Water Cooler Finance: Auto Hope, Bubbling Oil And Obamanomics.)

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