Should You Buy a Fixer Upper Rental Property or a Rehabbed House?
Residential Property Management

Should You Buy a Fixer Upper Rental Property or a Rehabbed House?

As you embark on the thrilling journey of real estate investment, you'll face a plethora of decisions.

One pivotal decision that often stumps new investors is: Should I buy a fixer-upper or a rehabbed home? Each path presents its unique opportunities and challenges. This comprehensive guide aims to shed light on both options and help you make an informed decision that best aligns with your investment goals.

Understanding the Power of Location

Before delving into the specifics of fixer-uppers versus rehabbed properties, it is essential to underscore the paramount importance of location. Regardless of whether you plan to reside in the property or rent it out, location is invariably the king.

According to Zillow's research, properties in desirable locations tend to attract quality tenants, yield higher rents, and appreciate more quickly in value. In contrast, a 'bargain' property in a less-desirable area can lead to extended vacancies or necessitate significantly reduced rent, impacting your income, cash flow, and ultimate profit.

The Fixer-Upper Investment

A fixer-upper is a property that requires some level of renovation before it's ready to be rented out or resold. While these properties often come with a lower upfront cost, they demand an additional investment of time, effort, and funds for improvements.

  • Personal Competence: An important aspect to consider is your aptitude for home repairs. If you are a handy person with ample time and the necessary skills, a fixer-upper can be a rewarding project. On the other hand, if you are reliant on professionals for even minor fixes, the renovation costs can quickly escalate.
  • Extent of Renovation: Not all fixer-uppers are created equal. Some might require a fresh coat of paint and new carpeting, while others need extensive overhauls of major systems like plumbing, electrical, or roofing. The level of required improvements significantly impacts your overall investment and potential ROI.
  • Financial Implications: In a 2019 study, HomeAdvisor revealed that the average remodel can cost around $46,792, although the range can vary greatly based on the property's condition and the desired upgrades. Thus, calculating the total cost of purchasing and renovating a fixer-upper, against the potential rental income or appreciation in value, can provide a clearer picture of your likely return.

The Rehabbed Home Investment

On the other side of the spectrum, rehabbed homes, also known as turnkey properties, are move-in ready. They have been previously renovated to a state that is appealing to buyers or renters, thus saving you from the need to invest in immediate improvements.

  • Immediate Returns: A major advantage of turnkey properties is their potential for instant returns. Once purchased, these properties can be immediately rented out, creating a swift income stream.
  • Convenience and Security: Buying a rehabbed home alleviates the time, effort, and uncertainty associated with renovation projects. It offers the convenience of a ready-to-go property and the security of knowing all necessary repairs and updates have been handled.
  • Higher Initial Cost: Typically, turnkey properties come with a higher initial cost due to the upgrades and repairs already incorporated into the price. However, when calculated against the immediate rental income and savings in repair costs, the investment can still be very profitable.

Making the Decision: Fixer-Upper or Rehabbed Home

The decision between a fixer-upper and a rehabbed home should be based on a balanced evaluation of your personal and financial circumstances. Your budget, skills, available time, risk tolerance, and long-term investment objectives all play a significant role.

If you have a constrained budget, enjoy DIY projects, and are willing to put in the time and effort, a fixer-upper in a promising location could be a profitable venture. On the other hand, if you prefer a hassle-free, immediate income-generating investment and can absorb a higher initial cost, a rehabbed home might be the right choice.

The Role of a Property Management Company

Whether you opt for a fixer-upper or a rehabbed home, partnering with a reputable property management firm can be advantageous. These firms handle tenant acquisition and management, regular maintenance, rent collection, and many other tasks, enabling you to maximize your returns while minimizing the daily hassles of property management.

In Conclusion: The journey of real estate investment is exciting and potentially very profitable. However, the decision between a fixer-upper and a rehabbed home hinges on thoughtful consideration and careful analysis. Understanding the benefits and drawbacks of each can empower you to make the right investment decision - one that best suits your individual goals and circumstances.

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