The Pros and Cons of a St. George Fixer Upper as an Investment Property

St. George is a great place to buy an investment property, with demand for both short and long term rentals. One of the most popular types of investment properties is the fixer-upper. These properties offer the potential for high returns but also come with significant risks. A fixer-upper is typically a property that needs substantial repairs or renovations, but many investors are drawn to them because of their potential for value appreciation once improvements are made. However, before diving into a fixer-upper investment, it’s essential to carefully consider the pros and cons.

Pros of Investing in a Fixer Upper

Lower Purchase Price

One of the most obvious benefits of a fixer upper is the lower purchase price. However, there is more to finding a profitable rental property than the lowest initial investment. 

Fixer uppers are priced lower than comparable homes in the area because of their need for repairs. This can be a huge benefit for investors with a limited budget or those who are looking to maximize their capital. You may be able to purchase a home in an up-and-coming neighborhood or a desirable location at a fraction of the price you would pay for a move-in ready home.

Appreciation Potential

When you buy a fixer-upper, you essentially have the opportunity to add value to the property through your renovations. Whether it's modernizing outdated interiors, fixing structural issues, or enhancing curb appeal, you can significantly increase the property's market value once repairs are complete.

This means that after spending time and money on renovations, you could see a significant return on investment (ROI). In some cases, the return on investment can be as high as 30% to 50%, depending on the location and the extent of the improvements.

Customization

As an investor, purchasing a fixer-upper gives you the ability to customize the property to meet the demands of your target market, whether it's for resale or rental purposes. For example, you can opt to install high-end finishes, update the kitchen and bathrooms, or create an open-concept layout that appeals to modern buyers. This allows you to create a property that stands out from other homes in the area, potentially attracting higher offers when it’s time to sell or rent.

In another example, you might be interested in creating a short term vacation rental to appeal to the tourists in the area. In that case you may want to invest in amenities that will make your vacation rental stand out from completion, and the fixer upper could provide the opportunity to do just that. 

Tax Breaks

Renovating a fixer-upper can also come with financial incentives in the form of tax deductions and rebates because the government wants to incentivize people to save homes from becoming condemned  For instance, certain energy-efficient upgrades, like installing solar panels, new insulation, or energy-efficient appliances, can make you eligible for tax credits and rebates.

Quickly Build Equity

Renovating a fixer-upper can help you build equity in the property much faster than purchasing a move-in ready home. With careful planning and strategic upgrades, you can increase the value of the property and build equity from day one. This is particularly advantageous if you’re looking to flip the property or secure a loan for future investment opportunities.

Cons of Investing in a Fixer Upper

Unexpected Costs

Renovations are inherently unpredictable. One of the biggest risks of investing in a fixer-upper is the potential for unexpected costs. No matter how thorough your inspection is, there may be hidden issues in the property, such as mold, asbestos, or foundation problems, that will increase your expenses.

Renovations can easily go over budget, and in some cases, what was intended to be a simple update can turn into a full-scale remodel. Wise investors have a contingency plan in place for unforeseen costs and should allocate extra funds for surprises.

Time Consuming

Renovating a fixer-upper is not a quick process. Depending on the size of the property and the extent of repairs, it could take months or even years to complete all the necessary work. This can be particularly frustrating if you're trying to sell the property quickly or start earning rental income.

If you're working with contractors, scheduling delays can further extend the timeline. Additionally, the longer the property remains in disrepair, the more it may affect the property’s value due to ongoing wear and tear. Keep the worst case scenario timeline in mind as you are creating a plan. 

Stress

Managing a fixer-upper renovation can be overwhelming, especially if you're not experienced in home repairs or construction. The process involves coordinating with contractors, obtaining permits, sourcing materials, and ensuring everything meets building codes and regulations. It can quickly become a full-time job, and if you’re not prepared to handle these responsibilities, it may be wise to hire a project manager. This will add to your expenses, but may be worth the stress relief. 

Erika Rogers says, "Whether a fixer-upper is the right investment property for you depends on several factors, including your risk tolerance, budget, timeline, and experience with home renovations."

Ready to look for homes for sale in St. George that are right for your investment plans? We can help, so contact us any time.