Many would-be home buyers have fantasies of purchasing a house that’s a diamond in the rough, then fixing it up to be a showplace. Only on occasion does it happen this way.

Why? Too often, the people with these fantasies don’t have the skills and experience to do the “fixing” themselves.

Most people who know what it takes to improve a “handyman’s dream” home don’t fantasize about the process. They know better. They understand how much work is involved, how much money is required, and how frustrating it will be to live in a construction zone while the work is completed.

Let’s face it. Realism has very little place in a fantasy.

If you’re one of those individuals willing and able to remodel and repair a home, the fixer-upper option could be a wonderful way to build sweat equity in a home. If, however, you underestimate the time, frustration and cash required, it can be a nightmare.

Pros:

• Below-market purchase price
• Less competition among buyers can mean even more leeway on price
• Lower taxes, since assessments are based on sales price
• Freedom to redesign the home during renovations
• Renovations can substantially appreciate the value of the property
• If you don’t qualify for a loan large enough for a move-in ready house, you may be able to gain financing for a fixer-upper, either through traditional means, a personal loan or creative financing options. (For example, look into the HUD 203(k) program, offered by the Federal Housing Administration.)

Cons:

• Requires an incredible amount of work
• Is costly if you hire contractors
• Is slow if you do the work yourself, especially if you also have a full-time job outside the home
• Hidden expenses may pop up as you begin renovations
• Stress and frustration is part of the rehabbing process
• It can take more money and more time than initially expected

Before you decide to buy a fixer-upper, be sure to do your research.

• Evaluate skills – Figure out what needs to be done and determine which of those items you can tackle and which ones will need to be hired out. Be honest with yourself about your current skill set. Sure, you may gain new skills during the process, but that’s often an expensive game of trial and error.
• Do a cost analysis - Determine if the cost of the house plus the estimated cost for the repairs/renovations will be far enough below the resale value of the rehabbed home to justify the hassle. Even if you plan to live in the house for a long time (you’re not planning to “flip” it), you still need to evaluate costs and resale value before taking on a project of this magnitude.
• Look for major issues – If the property has structural issues (e.g., foundation or roofline damage) or there are issues with the lot (flood-prone, poorly graded), you may want to walk away. Unless you are an expert, problems on this scale will probably outweigh any benefits you may reap.

If you decide to go the fixer-upper route, make sure you have the time, the money, the skills, the patience and the drive to renovate a home. Many would-be fixer-upper homeowners end up selling the house in frustration without making all the necessary renovations—and those sales are often made at a loss.

If, however, you succeed in turning a fixer-upper into a beautiful home, there are few things that can rival this feeling of accomplishment!