By Elizabeth Lucchesi
The fixer-upper: Everybody wants to know how to make a dollar in this day of high inflation. People want real estate. People want gold. While I don’t know a thing about gold, except what I wear on my hands, I do know real estate.
The wrong way to price your finished fixer-upper is to add an arbitrary number to your total costs at the end of the process.
The right way is to think in terms of thirds when you’re going to buy, fix up and sell. About one third of the purchase price should be what it cost you to improve it. Roughly a third of the list price for your finished product should be the equivalent of what you want to walk away with.
Let’s walk through it, assuming an arbitrary amount of $150,000 for the purchase price. The rule of thumb is to allot about 30% of the purchase price for renovations. Thirty percent of $150,000 is $45,000. Add in scope creep costs and you’re at $50,000 for renovation costs.
Scope creep, loosely explained, is when you budget for basic tile, but then you install Italian handmade tile from Vietri. Essentially, you’re over budget. This can put your budget and project at risk, but keep it in check and you’ll still come out on top.
So, you’ve put in roughly $200,000. If you want to walk away with $100,000 in your pocket when selling your home, factor in rolling realtor commissions, and your list price will be $325,000. That includes $100,000 for your heavy lifting and what you’ve paid for the real estate commissions and closing costs for the buyer.
Now, in this market, in Northern Virginia, these are outlandish real estate prices. You won’t come across those numbers, but you can do the math on your own home and find out what works.
But remember: The bigger the house, the bigger the number because you want to mitigate your exposure to risk.
A few other important things to consider:
Expect the unexpected
Limited contractor options, material shortages, shipping delays, unexpected weather and other hiccups are bound to happen. Adding cushion to your budget and project timeline will help you pivot and keep things moving as smoothly as possible.
Location, location, location
It’s a mantra in real estate – and for good reason. A potential buyer may fall in love with the home you create, but not the location, and that can be a deal-breaker.
Don’t let superficial flaws deter you from the home, but carefully consider key components like the foundation, HVAC and roof, among others. Major structural issues are a big red flag and usually a money pit.
The writer is the founder of the LizLuke Team of Long & Foster Real Estate. She is also a buyer and seller agent.