Getting a fixer-upper for a Tulsa rental property seems like a great deal. After all, the less you pay for a property upfront, the more likely it is to produce higher returns once you rent or sell it. But fixer-uppers also come with potential downsides, some of which can turn a bargain property into a financial nightmare. Before deciding to buy a fixer-upper, you have to really consider if investing in one is worth it. Evaluating the possible risks and benefits can help you decide whether purchasing a fixer-upper to use as a rental property is the right choice for you.
The Pros
Rental property investors often buy a fixer-upper property for instant equity. Fixer-uppers typically sell at a lower price than houses in better condition. Because of this, they often increase in value quickly after some repairs and updates. A lower purchase price also means a lower mortgage payment, resulting in higher net profit each month. You may also save on property taxes in the beginning since your first year or so of taxes are likely to be based on the property’s value when you bought it. When you add up all these things, you could get the highest possible return on your investment.
The Cons
In contrast to these benefits, there are also a few drawbacks to buying a fixer-upper property. For example, it is difficult to fully assess how much work needs to be done on a fixer-upper property before it will be ready for a tenant. Professional inspections, though helpful, may not always uncover serious hidden problems with plumbing and electrical systems, the foundation, or other structural elements. Along with hidden costs, a fixer-upper can also be met with many delays as you work on the property. Your hired contractor might also find it hard to stick to an efficient timeline. If you are doing the work on the property yourself, it is important, to be honest about how long the planned renovation will be, as well as how much time you are willing to commit to the project. Longer repairs mean you would be forfeiting more potential rental income as well.
Is It Worth It?
Ultimately, you are the only one who can say if buying a fixer-upper is worth it or not. Every rental property owner is different, as is every property. Assessing a particular situation and deciding if a fixer-upper property is a good fit for your skills and goals can be done by collecting the best information you can gather and conducting a thorough cost analysis based on it.
Researching and locating comparable properties in the vicinity will help you determine your property’s market value after the repairs are complete. Then, add up the total costs of buying and renovating the property. Be sure to include every expense, including closing and carrying costs (mortgage, insurance, utilities, and so on), as well as the cost of materials and labor for all planned repairs. Most investors allocate an extra 10% to 20% for unexpected expenses. Once you have computed the total cost, deduct this from the estimated market value of the house. If your expected return is around 10% or higher, you might just have found a great bargain.
But a fixer-upper won’t always be the right choice. For some investors, buying turn-key properties can be a more efficient but just as effective way to increase your monthly investment income. This is especially true if the property you want to buy is in a higher-end neighborhood, is undervalued by the owner, or has other amenities that make it ideal for a rental property. If you’d rather avoid the hassle of construction, delays in leasing, and the costs of preparing a property for a tenant, then perhaps a fixer-upper property isn’t the right choice for you.
As each situation is different, each investor must decide whether or not to buy a fixer-upper himself. But you do not have to do it all alone. Real Property Management Tulsa has expert Tulsa property managers to assist investors like you in preparing market analysis, setting rental rates, and locating potential properties for sale. Would you like to learn more about what we have to offer? Contact us online or call at 918-532-7020 today!
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