We know. It’s all shiplap wishes and farmhouse dreams when you’re watching from the comfort of your couch as Chip & JoAnna Gaines transform a turn-of-the-century clunker into a swoon-worthy, shiplap laden farmhouse. And, though the work is often worth the reward, the reality of buying and transforming a fixer upper is not always full of glitz, glamour, and good house bones. To make sure your flip doesn’t become a flop, check out these few tips before signing on the dotted line for the work-in-progress of your dreams:
Evaluate the age of major mechanicals.
When you’re walking through a potential fixer upper, it’s easy to get carried away as you envision whitewashing that wall of exposed brick, refinishing those perfect midcentury-mod-meets-rustic-restoration beams in the living room, plopping a farmhouse sink in the kitchen, and calling it a day. But, the reality is, very few fixer uppers have perfectly functional, problem free bones beneath the surface. Make sure you know (or ask) the age of all major mechanicals in the home – from roof to water heater, plumbing to cooling. After all, many homes that are chock full of character and charm haven’t been updated with the modern buyer in mind – meaning more expenses for you to incur along the way as you transform it into your dream home.
Don’t overlook the little details.
Sure, when you’re trying to convince your homebuying partner that this fixer upper is definitely the one for you, it’s easy to only point out the big “must-do” projects and hope they’ll forget about the 200+ others you conveniently forgot to mention. But do yourself a favor and be honest about every last project you’d need to see completed in order to be entirely happy.
And we mean everything. Like the beat-up brass found on every doorknob, hinge, and handle in the entire home. Or the outlet covers and register vents the sellers have lovingly coordinated in 6 shades of pea green. Or the louver doors that divide every choppy room and send you soaring back to your grandmother’s den faster than you can say “1960.” Whatever those pesky little projects may be, be honest with yourself, your partner, and your budget so that you can allow (and plan!) for all the little touches that can otherwise add up to one big, unexpected bill at the end.
Understand the pain of capital gain.
If you’re new to the idea of buying a gem that needs a little dusting off, chances are you might not know about your pesky little friend in house flipping – Capital Gains Taxes. Let’s say you purchase your partner’s dream fixer upper and unload $30,000 of your hard-earned money to make it good-as-new, only for your partner to decide that it didn’t feel at all like what they’d seen happen hundreds of times on HGTV, and that they wanted to move out (just months after you’d moved in!). Hey, it happens.
Before you go signing on that dotted line, be sure that both your and your partner’s expectations are realistic. More than that, make sure you both fully understand the weight of Capital Gains Taxes (taxes you’ll pay on any money made on the sale of the home if it’s your primary residence for less than 2 years, or never your primary residence at all). The long and short of it? Do your research. Talk to your realtor, your CPA (and anyone else who will listen!) before you make the big decision to buy and update a fixer, and approach it with concrete numbers of what you plan to offer on the house, what you plan to invest in fixing it up (including a contingency fund – you’ll need it) and how long you hope/plan to stay. Your CPA can even give you a list of deductions that’ll help minimize what you owe in Capital Gains Taxes for certain investments you’ve made into the home (like wall-to-wall carpeting, kitchen modernization, and more).
Create realistic roles & timelines… together.
So you’ve made it through the last 3 considerations without divorcing or deciding not to buy a fixer upper after all? Great! Now comes the doozy – creating realistic roles and timelines for your complete home overhaul. To start, make a list of which projects you plan to tackle DIY-style, and which ones you’d rather leave to the pros. Then, create a realistic flow-chart timeline of when you anticipate being able to have each of these projects done (especially since many projects depend on the completion of the project before – “Err… you want us to professionally paint your entire first floor of your home, but you haven’t brought in your drywall repair or electrical crews yet?”) Avoid these types of rookie run-ins by mapping out your timeline and contractors together, even if they all don’t unfold magically as planned in the end.