Key takeaways:
- A fixer-upper may cost less upfront, but renovations, inspections, and unexpected repairs can increase your total investment.
- Before buying, evaluate the home’s major systems, obtain contractor estimates, and set aside a 10% to 20% renovation contingency.
- Renovation loans can help eligible buyers finance a home and its improvements together, but requirements vary by program and lender.
Fixer uppers have traditionally been a popular way for first-time home buyers to enter the housing market. They typically cost less upfront, giving buyers an opportunity to build equity through renovations and improvements. Since the pandemic, though, fixer uppers have declined in popularity due to skyrocketing home prices and construction costs making the math less likely to work out. But that’s not to say all fixer uppers are a bad investment. In many cases, they can offer a shot at the American Dream while helping buyers feel like they turned a house into a home.
If you’re wondering how to buy a fixer-upper, the process starts with understanding the property’s condition, estimating repair costs, exploring financing options, and deciding whether the investment makes sense for your budget.
What is a fixer-upper house?
A fixer-upper is a home that needs repairs, updates, or renovations to improve its condition, functionality, or appearance. Some properties only need cosmetic improvements, while others require extensive structural or mechanical work.
Pros of buying a fixer-upper
- Lower purchase price: Homes needing work may be listed below comparable move-in-ready properties. That’s especially important today, as buyers get priced out and home sales reach historic lows.
- Customization: You can choose finishes, layouts, and upgrades that fit your needs.
- Potential equity growth: Improvements may increase the home’s value, although returns aren’t guaranteed.
- Less competition: Some buyers avoid homes requiring significant repairs.
Cons of buying a fixer-upper
- Unexpected expenses: Hidden damage can push renovations over budget – common in today’s inflationary economy.
- Project delays: Permits, materials, economic shifts, and contractor availability may affect timelines.
- Financing challenges: Some properties won’t qualify for conventional financing without repairs.
- Time and stress: Managing contractors, decisions, and temporary disruptions requires flexibility.
How to find fixer-upper homes
Start your search on Redfin by filtering for location, price, and “fixer-upper” home features. Look for listing terms like “needs TLC,” “as-is,” or “investor opportunity,” and set up alerts for new listings.
A real estate agent can help you identify potential properties, compare home values, and assess local market conditions. You can also explore foreclosures, auctions, and short sales, but these may come with additional risks and restrictions, such as limited inspection opportunities.
What to look for when buying a fixer-upper
The best fixer-upper isn’t necessarily the cheapest house. It’s one with a location, layout, condition, and renovation scope that make sense for your goals.
Location, size, and layout
“When considering a fixer-upper, start with the things you can’t change, like location, neighborhood, school district, and how the home is situated on the property,” recommends Britton Briscoe with HomeVestors. “Almost everything else can be changed with enough time and money, so a fixer-upper in the right location can provide a great canvas to create the home you want.”
Also consider nearby amenities, commute times, property size, and comparable home prices. Prioritize a layout that meets your needs, as major structural changes or additions can be costly.
Good bones and major systems
A home with “good bones” generally has a sound structure and major components that are in reasonable condition. Pay particular attention to:
- Foundation and structural framing
- Roof condition and age
- Electrical wiring and panels
- Plumbing and sewer lines
- Heating, ventilation, and air conditioning (HVAC)
Problems with these systems can significantly increase renovation costs. Cosmetic qualities, like peeled paint, stained carpeting, or neglected landscaping may make the house look worse for wear, but they are usually much easier to fix than a structural issue.
Cosmetic updates versus major repairs
Cosmetic updates like painting, flooring, and fixtures are typically easier to budget for, while structural damage, plumbing issues, and electrical problems can require costly repairs and specialized contractors.
“In Georgia, the most expensive fixer-upper problems are usually the ones you can’t see from the living room,” says Stephen Richardson, owner of Richardson Home Buyers in Atlanta. “Before you fall in love with a house, look under it: crawl space moisture, termite damage, and old polybutylene plumbing are common here, and can turn a cosmetic project into a major renovation. On older or rural properties, get the septic system inspected too, because a failed system can cost more than the kitchen you were planning. Paint and flooring are cheap. Structure, water, and wood-destroying pests are not.”
Inspection and permit considerations
Schedule a professional home inspection before finalizing your purchase. Depending on the property, additional sewer, pest, mold, or environmental assessments may be helpful.
Permit requirements vary by jurisdiction and project. Contact the local building department before assuming renovations can begin immediately.
Gary Vasyliev, licensed general contractor and founder of Arch Design & Build in Denver, CO, shares this important note to consider regarding permitting:
“Here’s what most buyers don’t expect: When you pull a permit for one room, the inspector can require you to bring other parts of the house up to current code. We recently had a client remodeling a bathroom in an older home, and the inspector wouldn’t sign off on final until smoke and carbon monoxide alarms were installed throughout the house. Budget for that kind of code catch-up before you buy, not after.”
Appreciation and resale potential
Compare the home’s potential value after renovations with recently sold properties nearby. Consider local market trends and buyer preferences, but remember that renovations don’t always recoup their full cost, and appreciation isn’t guaranteed.
How to decide if a fixer-upper is worth it
Determining whether a fixer-upper is worth buying requires looking beyond its asking price. The true cost can vary widely depending on the home’s condition, location, project scope, materials, labor, permits, and hidden problems.
“When I look at a fixer-upper, I’m not just thinking about what needs to be updated, I’m thinking about what the home could become and what it would realistically take to get there,” shares Jarred Call, founder and principal of Alpine Design & Remodeling. “Almost anything is possible with the right plan and budget, but even something as simple as removing a wall can involve relocating plumbing, electrical, or HVAC systems. Buyers shouldn’t feel limited by a home’s existing layout, but they should understand the investment involved in changing it before making a purchase.”
Compare total costs with potential value
Estimate your total investment by adding the purchase price, renovation costs, contingency budget, and additional expenses.
For example, a $250,000 home needing $60,000 in repairs, plus a 15% renovation contingency of $9,000, brings the estimated total to $319,000 before closing costs, financing, and other expenses.
Use affordability calculators and compare this total with similar move-in-ready homes to determine whether a fixer-upper is worth the investment.
Prioritize urgent and optional renovations
Address safety, structural stability, water damage, and essential systems first. Cosmetic projects, landscaping, and decorative upgrades can often wait.
Identify deal breakers and assess your capacity
Extensive foundation damage, recurring water intrusion, serious pest infestations, or major safety concerns may make a property unsuitable for your budget. Consider your available time, renovation experience, financing, risk tolerance, and whether you intend to live in the home or sell it after renovating.
Know when to back out of a project
A house may not be worth fixing when repair expenses, safety concerns, financing restrictions, or renovation risks exceed your financial resources and the property’s realistic potential value. Sometimes walking away is the better financial decision.
How to buy a fixer-upper in 7 steps
Buying a fixer-upper involves many of the same steps as purchasing a move-in-ready home, with additional planning for repairs and financing.
1. Determine a renovation-inclusive budget
Set a budget that accounts for the purchase price, renovations, permits, and additional expenses. Include a 10% to 20% contingency fund for unexpected repairs, especially with older homes.
“The biggest surprise on a fixer upper is what’s behind the walls,” says the team at Flatirons Remodeling & Basement Finishing. “Outdated wiring, old plumbing, and hidden water damage almost never show up in a walkthrough, so we tell buyers to set aside 10 to 20 percent of their renovation budget for surprises. Have a contractor walk the house before you make an offer, not after closing.”
2. Search for the right fixer-upper
Use Redfin’s search tools to identify properties within your price range and preferred neighborhoods. Focus on homes with manageable renovation needs and layouts that fit your long-term plans.
3. Have a thorough home inspection
Hire a qualified home inspector to evaluate visible structural components, major systems, and potential safety issues. Ask whether specialized inspections are recommended.
“There’s a major difference between a property that needs a lot of work and one that carries a lot of uncertainty,” explains Mike Bennett, founder and CEO of DealMate. “A roof that clearly needs replacing can be inspected, bid out, and priced into the purchase; unexplained water intrusion, questionable structural work, or years of poorly executed repairs can create open-ended exposure. Your contingency should reflect how much you don’t know about the property, not just the size of your renovation budget. If the deal only works when everything goes exactly according to plan, it probably doesn’t work.”
4. Consult a contractor
Request itemized estimates from qualified contractors before committing to major repairs. Ask about project feasibility, materials, labor, permits, and estimated timelines.
“We often see people putting all their faith into one contractor to complete their whole project,” says Angelique Tinny, president of the Real Estate Association of Puget Sound. “Really, what I recommend to people is to split up projects around the house. Have the painting done by one crew, kitchen and bath by another, and even more sub-projects split between crews. That way, you’re not so dependent on one contractor’s schedule that could fluctuate and leave you with an unfinished house.”
5. Explore fixer-upper financing
Compare renovation loans with traditional mortgages and separate renovation financing. Some loan programs allow eligible buyers to finance both the purchase and qualifying improvements.
6. Understand potential resale value
Research comparable renovated homes and local market trends. Consider whether your improvements are appropriate for the neighborhood and how long you plan to own the property.
7. Make a smart offer
Use inspection findings, contractor estimates, financing conditions, and comparable sales to determine a reasonable offer. Depending on the market and contract, you may negotiate the purchase price, request repairs, or seek seller concessions.
The 70% rule is a useful investor guideline that suggests a maximum purchase price of approximately 70% of a property’s estimated after-repair value (ARV), minus estimated repair costs. For a home with an estimated $300,000 ARV and $50,000 in repairs, this guideline suggests a $160,000 maximum purchase price.
Additionally, economic challenges increasing the costs of materials for repairs has made buyer competition for fixer-uppers significantly lower. While you may have less prospective buyers to compete with, you’ll need to factor a higher repair cost into your offer.
Financing options for buying a fixer-upper
Several financing options may help buyers purchase and renovate a fixer-upper. Availability, down payments, credit requirements, eligible repairs, and contractor rules depend on the loan program, lender, borrower, and property.
| Financing option | How it works |
| FHA 203(k) | Combines eligible home purchase and rehabilitation costs into one FHA-insured mortgage. |
| HomeStyle Renovation | Fannie Mae conventional financing for eligible home purchases and renovations. |
| CHOICERenovation | Freddie Mac conventional financing for qualifying renovation projects. |
| VA or USDA options | May support eligible borrowers and properties through participating lenders and qualifying loan structures. |
| Construction or equity financing | Alternative funding paths depending on project size, ownership, available equity, and lender requirements. |
FHA 203(k) loans
An FHA 203(k) loan combines home purchase or refinance costs with eligible renovations. There are two options:
- Limited 203(k): Covers smaller, nonstructural improvements within program limits.
- Standard 203(k): Covers larger renovations, including eligible structural repairs, with additional oversight.
Both options have specific eligibility, contractor, and project requirements.
Fannie Mae HomeStyle Renovation
Fannie Mae HomeStyle Renovation combines a home purchase or refinance with eligible renovation costs. It covers a variety of improvements, subject to lender approval, program limits, and contractor requirements.
Freddie Mac CHOICERenovation
Freddie Mac CHOICERenovation allows eligible borrowers to finance home improvements through a conventional mortgage. Its CHOICEReno eXPress option is designed for smaller projects, subject to program requirements.
VA and USDA renovation loans
Eligible military borrowers may qualify for VA-backed renovation financing through participating lenders. Certain USDA programs also offer financing for qualifying repairs or improvements, depending on borrower and property eligibility.
Construction and home equity financing alternatives
For major renovations, construction-to-permanent loans may combine construction costs with long-term mortgage financing. Investors may also consider short-term fix-and-flip loans, though these often carry higher costs and repayment risks.
What to expect from the renovation loan process
Renovation loans often require a few extra steps compared to traditional mortgages. Depending on your lender and loan program, you may need to:
- Submit contractor estimates: Provide detailed bids outlining renovation costs, materials, and timelines.
- Complete an appraisal and lender review: Your lender may assess the home’s projected value after renovations and set requirements for releasing funds.
- Confirm permits and loan requirements: Check contractor qualifications, permits, project deadlines, and how unexpected repairs or delays are handled.
The bottom line
Learning how to buy a fixer-upper starts with understanding what you’re purchasing, what it will cost to improve, and how you’ll finance the work.
Before making an offer, arrange appropriate inspections, get contractor estimates, verify financing and permit requirements, and evaluate comparable properties. With realistic expectations and careful planning, you can decide whether a fixer-upper is the right home for you.
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