The current housing market means you’ll likely pay top dollar for a home that’s considered turnkey — immediately ready for you to move in. Plus, the competition is steep. Perhaps those two reasons are why 52% of American homebuyers are looking for a starter home or a fixer-upper rather than a forever home, according to TD Bank‘s First-Time Homebuyer Pulse, which polled buyers planning to purchase in 2022.
If you’re struggling with whether to keep combing the housing market for a move-in-ready home that fits your budget or to take your chances with a fixer-upper, here’s the expert insight you need.
Pros of Buying a Fixer-Upper
Buying a fixer-upper can provide you with advantages that a turnkey home doesn’t offer. Consider the following.
“Fixer-uppers can be a great way to get a deal on a property and save money on taxes,” said Jeremy Luebke, founder of WeLoveLand. “In many cases, fixer-uppers are sold for less than the market value because the seller is motivated to move the property quickly. This can be a great opportunity for bargain hunters. Additionally, fixer-uppers often come with significant tax breaks. The government offers tax breaks for people who rehabilitate or redevelop properties, so if you’re planning to do major work on your fixer-upper, you may be eligible for some significant tax deductions.”
“The big advantage to taking the risk on a fixer-upper is the equity you build while improving the value of the property,” said Doug Greene, owner of Signature Properties. “This is the flip potential that exists, while in a turnkey home you are essentially buying the property at full price (i.e., market value).”
Potential for Creativity
“An advantage of purchasing a fixer-upper is the opportunity to put money into the features of your house that are most important to you,” said John Riedl of Easy Cash Offer Florida. “Do you want a modern kitchen? What about a luxurious soaking tub? If you are purchasing a property that is move-in ready, you can find yourself subject to the taste and interests of the past owner.”
Riedl also pointed out that fixer-uppers give you a lot of control over the renovation process by selecting paint colors, floor materials, contractors and anything else you desire.
Cons of Buying a Fixer-Upper
Time, money and effort are all required when it comes to getting a fixer-upper where you want it to be. Here’s more on the potential disadvantages of going this route.
“The cost of labor and materials is near its highest price ever, and if you are hiring contractors to perform work on your home, unless you have a crew on standby, it could be months before the work is done,” said Tony Grech real estate investor and lending expert with Luxury Mortgage. “Just like there is a shortage of home inventory that has driven prices up, there is a shortage of qualified tradespeople as well as a shortage in raw materials due to supply chain issues that stretch back to the beginning of COVID. So you save $20,000 or $30,000 on the price of the home, but it costs you $60,000 to perform the work that you want.”
Beyond the costs in labor and materials, renovating a home comes with some other headaches and risks,” said Brian Davis, real estate investor and founder at Spark Rental. “You have to navigate the treacherous waters of permits, which involves not just filing fees and dealing with the permit office, but also hassling with inspectors.”
Ryan Fitzgerald, owner of UpHomes also said that renovating a fixer-upper requires a lot of effort. “Renovations are time-consuming and stressful so make sure you’re up for the challenge if you decide to get a fixer-upper,” he cautioned. “If you don’t want to deal with the construction, managing contractors, and living in a home that isn’t finished, a fixer-upper may not be the best choice for you.”
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Pros of Buying a Turnkey Home
While a home that’s ready to move in will likely cost much more than a fixer-upper, there are some definite advantages that are worth considering.
No Renovation Costs
“When you purchase a turnkey home, the price you see is the price you pay,” said Luebke. “There are no additional costs for things like landscape or certain home upgrades. This can be a big advantage when budgeting for your new home. You know exactly how much money you need to bring to the table, and there are no unpleasant surprises down the road.”
Minimal Effort Required
If you’re looking to move in and start enjoying your new home as soon as possible, a turnkey home is a perfect choice. “Turnkey homes require much lower effort because you can move right in and start enjoying the home after you unpack,” said Ryan Fitzgerald, owner of UpHomes.
Cons of Buying a Turnkey Home
However, buying a turnkey home also comes with a few drawbacks. It’s up to you to decide if they are worth it.
More Expensive Taxes Upfront
While you can get a lower property tax rate by buying a cheaper fixer-upper, that’s likely not the case with a turnkey home.
“If you opt for a turnkey home, the municipality will have likely already caught up to the new assessed value by the time you move in,” said Greene. “It’s usually the sale of the property that triggers a property reassessment in the system.”
Flip Potential Is Nonexistent
“Buying turnkey is certainly the way to go if you have no desire to make repairs to a home and want it move-in ready,” said Jeff Shipwash, CEO of Shipwash Properties LLC. “Unfortunately, in today’s market, turnkey properties are at a premium. This means you will more than likely have strong competition and will be paying top dollar for it. This results in buying with little to no equity to spare.”
And without any equity to spare, there is no flip potential.
Limited Opportunities for Creativity or Customization
“The home might not be exactly what you want,” said Luebke. “Since the home has already been built, you may be limited in terms of customizations or changes that you can make. The home might come equipped with most, if not all, of the features and amenities that you desire, but there is always the chance that something will not be quite to your liking. This can be frustrating if you have specific ideas about how you want your new home to look and function.”
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This article originally appeared on GOBankingRates.com: Housing Market: Should You Buy a Fixer-Upper or a Turnkey Home?