You are on a mission to buy a house. You want a home that fits your budget and that also offers the right location, aesthetic features and access to amenities. Most likely, you’ve been looking at turnkey houses, but you may be wondering if they are the best choice. Maybe it would be best to buy a fixer-upper, or perhaps a vacant lot and build new? But that ready to move-in property was so beautiful.
Each of these choices has benefits and drawbacks that you need to carefully consider. After all, as probably the biggest purchase you’ll ever make, you want to make sure the option you choose will help you realize the best return for your time and money.
Should You Buy a Fixer-upper?
Buying a fixer-upper can be an exciting and interesting experience, especially if you are handy and willing to roll up your sleeves in exchange for a low purchase price. Instead of being stuck with the existing style of a turnkey house that you may not like, you can pick and choose improvements to make that will best reflect your personal style.
Beyond its attractive purchase price, a fixer-upper will potentially offer many other financial benefits. Any renovations you make will likely result in an increase in the value of the property. While you own it, you can leverage the value of your home’s net worth as collateral for other loans or investments. Finally, when the time comes to sell, you stand to make a better profit from buyers who are seeking a turnkey solution for themselves and will appreciate the renovations you’ve made.
But beware: There are potential downsides you need to be aware of when buying a fixer-upper. Renovations can be exciting and rewarding, but they can also be stressful and time-consuming. Beyond the obvious signs of deterioration that may be evident when you buy, there could also be unexpected issues lurking that you will not discover until the renovations are underway. Such unseen problems could cost considerably more to fix than you’d expected — and leave you seriously in the red.
Even for experienced renovators, there are times when the best-laid plans will go off the rails. Whether bad weather causes delays or the wrong kitchen cabinets get delivered, such setbacks can be frustrating and cost you a lot more to deal with than you’d originally planned.
Should You Buy a Vacant Lot or Piece of Land?
If you’ve got two left thumbs and the thought of a fixer-upper makes you sweat, then maybe you should consider investing in a lot. Because you’re only buying a piece of land, vacant lots are often cheaper than either fixer uppers or turnkey houses. You can put the money you save on the purchase towards building a new house and customizing it to your taste.
As long as you put in the research to satisfy yourself that the land is free of legal encumbrances and suitable for building on, you won’t run the same risk for unforeseen problems as you would with a fixer-upper.
However, keep in mind that building a new home from the ground up can be just as challenging, if not more so, than renovating a house. These are just a few of the key questions you need to consider before buying a lot:
- What are the residential zoning requirements?
- Is there property zoned for commercial use that is near the lot?
- Is the lot prone to flooding?
- What utilities and services are available?
- What fees and taxes will you have to pay?
- Can I get a mortgage on the land?
- Do I have enough capital to fund the building of a new, custom home?
- Can I afford to put down a larger down payment?
Will the conservation authority approve the building permit? If so, are there any restrictions that might apply to what you can build on the lot?
Remember, purchasing a lot is similar to buying a fixer-upper in that it may be cheaper upfront, but it can cost more over time, especially when obstacles arise that hinder construction plans. Down payments on lots generally fall within the range of 30% to 50% or more and only if the lot is in an urban setting. If the land is in a remote setting (as determined by the lender) you may not be able to get a mortgage, period. There is also the risk of zoning changes being made to the property, so financing with loans, including potentially high-interest rates and down payments, can become expensive.
Should You Buy a Turn-Key or Move-In Ready Home?
If neither renovating or building a house feels right for you, you can always turn to a turnkey home. Since the house will have already been remodelled and repaired by the sellers, you can just move in right away, saving yourself time, money and peace of mind. Plus, you won’t have to deal with the hassles of construction or renovations. This is the ideal solution for buyers who have busy schedules and are willing to pay a little more.
Better still, because these homes are move-in-ready quite often these properties will boast upgrades. Because of the ease of a turn-key home, this option also tends to be more expensive, at least up front. The advantage is that the cost for an upgrade it baked into your mortgage — rather than saving up or getting a loan for a reno, you pay a higher price for an already remodelled home.
Of course, down the road, even a turn-key home may require updates or remodels. There may well be certain aspects of the home’s design that don’t suit your taste. You can fix this problem by — surprise! — redoing the interior and/or the exterior. Depending on what needs to be done and the complexity of the project, you may not have to spend a lot of money.
No matter what type of home purchase you plan to make, be prepared to invest time and energy in researching, planning and making financing arrangements, and try to maintain a cool head throughout. With a fixer upper or a vacant lot, you have to be prepared, financially, emotionally and mentally, for fixing up or building your home from scratch. And even if you’re willing and able to pay more upfront for a turnkey home, there might still be repairs or upgrades to deal with after you’ve moved in.
Whatever you choose, it will be worth it in the end when you find yourself living in the home of your dreams.