Canadian homes are expensive. In fact, the Canadian Real Estate Association (CREA) said the average home in Canada cost $481,745 in March of 2019. There is no denying it. The high prices in major metropolitan cities mixed with high demand makes breaking into the market seem unachievable.
Yet home ownership is still a big goal for most of us. Many of us save for years trying to make this dream a reality. So while looking at your options, contemplate whether or not you should consider buying a fixer-upper.
What defines a fixer-upper?
What exactly is a fixer-upper? It’s a house in need of repair. And it’s a great option for homeowners who want to “fix-up” a property in order to leave their mark (or have the features they desire most in a home). Quite often, fixer-uppers come with a lower price tag. This is due, in part, to the need for some pretty heavy-duty renovations. Still, these properties are just one way for potential buyers to break into the market. And let’s get real, we’ve all considered it. We binge-watch HGTV’s Property Brothers and we laugh at how adorably fun Chip & Joanna from Fixer Upper are when they go through a renovation. Many of you want the opportunity to customize every part of your property, too. But is it really that easy? Is it really that fun?
Sean Godfrey and his fiance seem to think it’s all of the above. They spent over a year looking for a home in Edmonton, Alberta. It had to fit their price range and have enough space for them to grow. A fixer-upper seemed like an excellent option for the young couple. It meant they might have to spend most of their weekends working on renovations. But they agreed it was worth the hours devoted in order to save money on their first home. “I love the home because it’s something we can turn into our own,” said Godfrey. They purchased the 41-year-old property in 2017. Since then Godfrey learned that he has an eye for the seeing the potential in a house that others may not. Fixer-uppers require the right personality and attitude to see the project through to a successful renovation.
What kind of skills do you need to own a fixer-upper?
Most homeowners who purchase a property in need of upgrading have experience working on construction projects. Or they know the fundamentals of home repair. You can hire a professional contractor to complete the work for you. But it will save a lot of money if you are able to do the majority of the tasks on your own.
“Having experience doing projects around the house and working with tools is almost required,” said Godfrey. He admits he’s been working on construction and home improvements since the age of 12. It’s always an option to learn as you go, but the to-do list will shorten much quicker if you can complete the work in a reasonable amount of time.
When tackling a fixer-upper, you should be prepared to assess the risk of each project. You will have to determine whether or not it will add value to the property. After all, the ability to increase the market value of the home is typically an important factor to the owners of fixer-uppers. Before you buy, confirm what projects you know you’ll be able to do yourself, and what projects will require professional renovation.
Is the sweat equity worthwhile?
In less than a year, Godfrey and his fiance already spent $3,000 on renovations and the couple estimates an additional $25,000 must be allocated to make their three-bedroom home liveable. To rationalize the cost, the couple looks to the future. They anticipate making back the money spent once they sell their upgraded home. It’s a calculated risk the couple made based on the 19.1% average return the top 25 neighbourhoods in Edmonton made between 2012 and 2017. The Appraisal Institute of Canada (AIC) guide for valuing home renovations seems to be in line with what Godfrey predicts. His kitchen, bathroom and decor updates are all high returns on investment.
Some renovations will give homeowners more equity than others. By focusing on updating fixtures, flooring, bathrooms and kitchens, a fixer-upper will typically increase the value of a home five to six times more than what they paid to do the renovation. The hard decisions are the updates nobody sees. Updating your HVAC system — which includes your furnace, ductwork and central A/C unit — or electrical wiring rarely has a dollar for dollar return, yet neglect these upgrades and potential buyers could start to question whether or not the fixer-upper is putting lipstick on a pig.
In July 2016, Jordann Brown and her husband purchased a $270,000 home in Halifax, Nova Scotia. Originally listed at $289,000, she and her husband did plenty of research before coming back with their final price. “We got it under list price due to minor issues that would-be buyers were walking away from after the inspection.” A dip in the roof and some non-cosmetic upgrades scared away other buyers.
Brown, the proud owner of this 83-year-old fixer-upper, knows a lot about having to make invisible improvements to a home — an area where fixer-uppers might become more costly than anticipated. She and her husband paid to update their hot water tank, electrical wiring and internal plumbing in the bathroom. Although these upgrades seem unnecessary — as they are invisible to the naked eye — the next home inspection would surely point them out. As areas requiring upgrades, this could prompt potential buyers to back away from the purchase.
To finish the rest of the upgrades Brown and her husband set a budget of $1,000 per month for large renovation projects and another $200 for general maintenance. Brown admits she saves an additional 15% to 20% for each project in case they go over budget. With a home that has plenty of quirks, each time they open up a wall, there is something new to be updated.
From her experience, Brown strongly advises not to purchase a fixer-upper if you want to make a quick buck. “Unless you’re experienced at flipping homes, it might be a bad decision to base your financial prosperity on your ability to do this thing you’ve never done.” Just recently, Brown redid her office space and chose to hire professional help to install the window. To save on the overall cost, she completed the window installation herself by adding trim.
Do you have the right temperament and lifestyle?
Fixer-uppers can be amazing for someone who is patient and decisive. “Your contractor is not going to guide you as much as you want them to,” said Brown. “You need to be comfortable making decisions.” Brown also recommends that you ensure you are okay to roll with the punches as things may not go right the first time. After all, “old homes are like wild beasts that resist change,” she joked.
Speaking of rolling with the punches, 86% of Canadians agreed renovation projects end up costing more than they assume. And 31% of Canadians do go over budget on those projects. Brown wasn’t joking when she said things might not go as planned.
On top of having the right temperament for a fixer-upper home, you’ll also need to have the right lifestyle. Is living in organized chaos for five years something you’d be interested in doing? If not, it’s probably best to look for a home that’s already near completion. When you have to scrape paint for 20 hours on the weekend, you will want to enjoy these types of projects as a hobby and not a job.
A significant reason that Godfrey’s lifestyle works well with renovation projects and busy weekends spent painting, is his career. Godfrey, a firefighter, and his fiance, a nurse, both work shift-work. “Having six days off in a row allows me to do far more work on the house than if I worked Monday to Friday,” said Godfrey.
So, should you buy a fixer-upper?
If you’ve ever watched me put together IKEA furniture, you’d understand why a fixer-upper is out of the question for me. I’d like to think that I’m capable of doing a minor home renovation if needed. But even if I could watch a YouTube video and figure it out, my lack of patience would win. Ultimately, my home would suffer. For all the reasons Brown and Godfrey enjoy their fixer-uppers, I would skip the process and buy a home that is already complete and as up to date as possible.
Brown and her husband may spend less on a mortgage. Temporarily they are paying a tonne more for renovation projects. Godfrey and his fiance may love their chance to grow a hobby. But they do admit it takes away from their love for travel. “Traveling has been a big part of both of our lives, so changing our short-term mindset to saving money for the house has been a major adjustment.”
There are a few solid reasons that these couples are pro-fixer-upper-life. But just because you can, doesn’t always mean you should. The bottom line is that we all buy homes because they provide a safe and functional space for our individual needs. Before you go all HGTV, consider the real costs and real personality traits it takes to become the owner of a brand new, old fixer-upper.
I’ll say it louder for those in the back. A fixer-upper is not right for me. But maybe it is for you.