If you're in the market to buy a home, I'm not sure if you should buy a fixer-upper anymore unless you're under 40 and hungry. The cost of construction is way high and your time is valuable. Instead, you should consider buying a remodeled home to save your sanity and your marriage.
I've bought two fixer-uppers and I never want to buy another again. I'm too old and tired to earn sweat equity. I’d much rather invest in 100% passive real estate through a platform like Fundrise. If you get unlucky with a bad contractor, the remodeling process could make your life a living hell!
There's just one problem with buying a remodeled home. You will likely have to pay an even bigger premium than ever before. However, I expected the premium over a non-remodeled home will continue to increase.
Due to the increased time, cost, and difficulty to remodel a home today, remodelers will demand higher selling prices for their efforts. Also due to the increased difficulty to remodel a home, the supply of remodeled homes will likely decline, thereby creating a greater premium for such homes.
Given the amount of pain I experienced remodeling my latest fixer, I don't think I'll ever sell. Receiving a market price won't do it for me.
Why Remodeled Homes Will Sell For Bigger Premiums
In early 2019, I bought a fixer-upper with tremendous potential. The house has panoramic ocean views from all three levels. It also has an enclosed backyard, which proved to be highly valuable for a family with kids during the onset of COVID. But what made the house even more attractive from an investment perspective was the expansion potential on the ground floor.
When I bought the fixer, the ground floor consisted of an odd-shaped room and an ancient half bath on a raised platform. The entire space was about 300 square feet. My idea was to blow out the old space and expand it to ~615 square feet by reclaiming 315 square feet of the garage. The garage would still be large enough to park one full-sized SUV plus storage.
To make money in real estate, focus on expanding the livable square footage. If you can build for $300/sqft and sell for $1,000/sqft, you've made yourself a handsome profit. I did it before with another house in 2014-15, so I thought I'd do it again.
Below shows the old layout and wasted space. My remodel would consist of building a living room, bedroom, closet, hallway, and laundry room. The laundry room could also have a kitchenette.
Took Forever To Complete The Remodel
When you remodel within the envelope of the house, it should be a straightforward process. By not expanding outside the envelope, you don't need special permits nor do you need to notify your neighbors.
Here in San Francisco, any expansion, including building a new deck, requires notifying the neighbors and waiting for three months to see if anybody objects. If someone does, they need to pay a $500 fee for the right to speak up in a hearing.
Phase I Of Remodel: Not Too Bad
I started phase 1 of my remodeling project (remodeling upstairs bathrooms, kitchens, paint, windows, flooring, wiring) in June 2019. By November 2019, phase 1 was finished. Phase 1 took one-and-a-half months longer than guided, but that was in the scope of my expectations.
We wanted to move into the bigger house before our daughter arrived in December 2019. The top two floors would be bigger than our previous house we bought in 2014 by about 350 square feet.
Once we moved in November 2019, we started Phase 2 of my remodeling project (downstairs gut remodel).
Given we had to rewire the entire house upstairs, my contractor decided to demolish the entire downstairs to gain easier access. I was fine with losing the 300 square feet of downstairs space so he could work easier because I also expected him to star construction downstairs soon after.
Oh how wrong I was!
Phase II Of Remodel: A Disaster
For four months, my contractor didn't do anything after he demolished the ground floor. He just left the ground floor an empty shell from November 2019 to July 2020.
I kept asking him what was up and he kept ignoring my requests to start. Then the pandemic began in March 2020, locking everybody down for another two months. Below is a picture of our unusable demolished ground floor.
In mid-April 2020, I discovered a completely remodeled home for sale. By June 2020, I already knew my ground floor remodel project would take forever. As a result, I decided to take a leap of faith and buy a new forever home and no longer wait.
Looking back, it now seems crazy to have made such a large investment in 2020 shortly after purchasing my fixer in 2019. Like everyone, I was dealing with the uncertainty of COVID. We pulled our son from preschool. I was also dealing with an unreliable contractor with hard-to-determine remodeling costs!
But I did what I could to take care of my family. Not only did I expect my remodeling project to take longer, I also had a growing feeling COVID disruptions would last longer as well. This is another example of not depending on others to live the life you want.
My contractor didn't come back until July 17, 2020 to start the framing, eight months after demolition. Based on my contractor's original guidance, I thought our entire downstairs project would have been completed by June 2020.
Oh, how naive I was!
Massive Delay In Getting Final Permit Approved To Officially Begin
Once the framing and rough was done in September 2020 (after getting a demolition permit), my contractor proceeded to disappear again for several months with no explanation.
But before he disappeared, I went ahead and bought all the finished material (tiles, flooring, fixtures, tub, shower, faucets, etc) in anticipation he would return shortly. My expectation was his workers would start installing the finishes by November 1, 2020 and be done by the end of 2020. The cost of the materials was about $22,000.
Unfortunately, my contractor didn't end up getting the construction permit until August 1, 2021, 13 months after he returned and began the framing. As a result, I had to store my finished material with the store for that time period. Thankfully, the store didn't charge me.
My contractor decided to work ahead of the construction permit by demolishing and framing the downstairs to save time. But it took one year and nine months to finally get the official permit.
If you're deciding between remodeling with a permit or not, I still recommend you get one. Eventually, your remodeling project will be done. A permit will help ensure the job is done right. Further, permitted work is also more valuable during resale.
Reasons For The Remodel Delay
35% of the reason for the remodel delay was because my contractor was too disorganized and unmotivated. My remodel grew into a side hustle for him where he'd only work weekends and the occasional weekday. He had landed a full-time job as a building inspector for another county. How ironic!
30% of the delay was due to COVID shutting the Department of Building Inspection (DBI) down for several months.
20% of the delay was due to workers unwilling to work during the beginning of the pandemic. Several of his workers over time had to quarantine.
Finally, 15% for the delay was due to government corruption and inefficiency. DBI supposedly spent millions of dollars to build an online tool to enable online permit submissions, review, and approval. But after putting everyone on hold for months, DBI decided to cancel the entire project and go back to partial in-person visits.
Before the pandemic, there were already plenty of reports of corruption at the DBI. Things like permit expediters bribing inspectors to get on the fast track and inspectors holding a project hostage without under the table payment were common.
These shenanigans are ironically good for real estate investors who don't need to remodel. The harder it is to get a building permit approved, the less supply will be built. Less supply, means higher home prices.
The Benefit Of A Delayed Remodel
In April 2022, I finally finished the ground floor remodeling project that began in November 2019. I truly thought the project would have been done no later than December 31, 2020.
The old rule of thumb was to expect your remodel project to cost 50% more and take 50% longer than expected. Today, to manage expectations and protect your sanity, you best increase these percentages.
The only good thing about this long remodeling project is getting the permit signed off at a later date. A 2022 approved final inspection makes the remodel more valuable than if it were approved in 2019, 2020, or 2021. You'll recognize the value of a newer permit approval if you ever sell your home.
For example, the home in my real estate FOMO post has a line-item description saying, “Complete renovation from 2018 – 2022.” Sounds like a brand new arduous remodel! Alas, when I went to look at its 3R report, I discovered the gut renovation was actually done in 2018. They only installed a fireplace 2022 with a permit. Tricky marketing!
Given the gut remodel was four years old instead of in 2022, my perceived value of the home instantly declined by 2% off its aggressive asking price.
The Cost Of Remodeling Delays
My remodeling delay probably cost me about $30,000 in extra labor and material costs. I expected the entire downstairs remodeling job to cost $100,000. But it cost closer to $130,000.
Then there is the cost of not renting out the bottom unit for $1,500 – $1,800 a month. If I say the delay was 12 months, then my opportunity cost is $18,000 – $21,600 of lost rent. The positive of not renting out downstairs is less wear and tear and less time dealing with tenant issues.
Finally, there is the cost of my time and happiness. I would have gladly paid more to get everything done a year sooner. If there is a remodeling next time, I may add some financial incentives for on time completion.
In total, I estimate the cost for my remodeling delay is somewhere between $48,000 – $51,600. These costs ultimately get partially passed down in the form of higher rents or a higher asking sale price.
Please follow my remodeling guidelines if you want to get the highest return on capital. Going into a remodeling project without a detailed plan is dangerous. Cost overruns could easily eat away all your expected returns.
Longer Remodeling Times Is Becoming Ubiquitous
Sadly, my remodeling story is not unique. Since the pandemic began, all home remodelers I've spoken to have experienced delays and cost overruns. Even after the pandemic, remodeling still costs a lot and takes a long time to complete.
One fellow preschool parent told me her project has been going on for two-and-a-half years. It is now on hold because she has had three different building inspectors come out at each stage. And every building inspector wants a different thing. As a result, she has to play a cat and mouse game where she calls for the building inspector and then cancels last minute if a different name pops up.
She ended up firing her contractor and getting a new one, hence the current pause. Her belief is this new contractor will have a better chance at navigating the DBI labyrinth due to “closer connections.” Unfortunately, this new contractor will cost her more money and time, which ultimately means higher prices for buyers of remodeled homes.
Thankfully, post pandemic, supply chain issues have abated. So have the cost of lumber and other building materials.
Cost Of Constructing A New Single Family Home In America
Below is a great chart that show the cost to construct a home by category. With inflation continuing to be elevated, the cost to construct a new home continues to go up.
How Much Will The Remodeled Home Premium Expand?
A buyer is willing to pay a premium for a remodeled home to save them time, money, and stress. I think the price premium expansion of a remodeled home over a non-remodeled home could easily grow by 50 percent. Let me explain with an example.
Let's say you found a $1 million un-remodeled house five years ago. It cost $100,000 and three months to remodel. In the past, you could have sold it for $1,210,000 for a 10% premium of $110,000 over the all-in cost of $1,100,000.
Now let's say you want to remodel the same house today. It now costs $130,000 and six months to remodel for a total cost of $1,130,000. Instead of being able to sell it for a 10% premium at $1,243,000, you may be able to sell it for a 15% premium at $1,299,500. The difference is $56,500; $30,000 of which is eaten up by higher construction costs. The remaining $26,000 compensates you for your time and opportunity cost.
A remodeled home's price premium depends on how difficult it is to remodel and build in your area. In cities that are already fully built out with not a lot of land, the price premium will be much higher. Think big cities such as San Francisco, New York, Boston, and Seattle.
Conversely, cities that have endless amount of land to build and a very pro-building local government will have remodeled homes that command a lower premium. Think cities in the heartland.
This logic is consistent with remodeling more in areas where the selling price per square foot is very high. It is simply more profitable to remodel higher-priced homes.
Buy A Fixer Or A Remodeled Home?
If you're scared to remodel after reading this post, you should be! Here are some quick thoughts on which way to go.
People who are OK to buy fixers:
- Under the age of 40
- Don't have children
- Your day job can be done in under 40 hours a week
- Have a net worth under $1 million living in the heartland or under $3 million living on the coasts
- Single or in a stable relationship
- Bored in retirement and need more purpose
- Are a real estate addict and love project management and DIY
- Have a good relationship with an experienced and trustworthy general contractor
- Know your way around the planning and building departments
If three or more of these bullet points pertain to you, the 70% move is to buy a fixer and make some sweat equity. You can make an incredible amount of money remodeling and expanding a home and then selling or renting out.
People who should probably buy remodeled homes:
- Over the age of 40
- Have adolescent children
- Work a demanding day job that requires much more than 40 hours a week
- Married or in a precarious relationship
- Have a net worth over $1 million living in the heartland or over $3 million living on the coasts
- Fulfilled in retirement
- Have lots of passive investment income
- Are in decumulation mode and want to live it up more
- Have already gone through the experience of remodeling multiple homes
- Are OK getting into a bidding war because the demand for fully remodeled homes is way up
If three or more of these bullet points pertain to you, the 70% optimal move is to buy a remodeled home. Your time is too valuable. Invest in passive real estate funds through a platform like Fundrise instead. The Sunbelt provides some of the most attractive real estate opportunities. Meanwhile, your mental health will thank you for not going through a painful remodel.
Please don't underestimate the stress of remodeling a home. If you want to make money from real estate without the remodeling stress, invest in a private fund or private syndication deal instead.
The main reason why I reinvested $550,000 of my rental property sale proceeds into a private real estate fund was because I didn't want to fix the leaking windows and rewire the rental house to the latest code. Add on dealing with rowdy tenants and it was becoming too much. 100% passive returns is what I now only want.
Remodeled Homes Will Trade At Higher Premiums
So there you have it folks! Remodeled homes are only going to only get more expensive over time. The wealthier we all get, the more valuable our time. As a result, more buyers will demand fully remodeled homes to save time and energy.
Buying and remodeling a fixer is increasingly becoming a young person's game. Either that, or you really need to know your way around the system. Sweat equity is worth more the less you make.
If you can find a remodeled home that isn't trading at much of a premium, if at all, buy it! Upgrading homes without having to do any work is an ideal situation for older and wealthier homeowners.
If you want to avoid the bidding wars for fully remodeled homes, go up the price curve and buy a more expensive remodeled home. Fewer people can afford homes more than 50% higher than the median-home price of your city. As a result, you can often get a better deal on a price per square foot basis if you buy a more expensive home.
And even if you have to pay a premium, I think that premium is only going to increase over time. Anybody with any remodeling experience knows how much effort it takes to create a truly wonderful structure.
Recommendations
To invest in real estate passively without all the remodeling headache, check out Fundrise, my favorite private real estate investing platform today. Fundrise started in 2012 and manages over $3.5 billion and has over 500,000 investors. Its funds primarily invest in the heartland of America, where valuations are cheaper and cap rates are higher.
Another private real estate platform to consider is CrowdStreet. Crowdstreet is a marketplace that mainly sources individual commercial real estate deals from various sponsors around the country. This way, you have more customization to build your own select private real estate portfolio.
You must diversify your portfolio and do your due diligence on all the sponsors. Look up their track record, their management, and whether they have had any blowups before. Although CrowdStreet screens the deals, you have to do your screening as well.
Both platforms are sponsors of Financial Samurai and Financial Samurai is an investor in Fundrise.
Why Remodeled Homes Will Sell For Bigger Premiums Going Forward is a Financial Samurai original post.
Hi Sam, I was a young journeyman and master plumber in Hamburg NY in 1970s. Typical new house was 3-4 BR , 2 -2.5 bath with full basement. These houses would be built and finished in 3 months from digging basement to move in by customer. Two man crew 1-2 days rough plumbing, 2 days basement plumbing, 1 day finish setting fixtures plumbing and 1 day digging & installing water and sewer line. If I asked my boss the number of feet in sewer line his response was your installing in one day. The boiler hot water heating was one day rough and 2 days finish. Plumbing remodels with 2 man crew never exceeded 5 days from rough to return for finish. Why because in WNY the new house must be sealed before winter.
So basically during the rough the plumbing and heating would be scheduled when the carpenters were still roughing. The Master carpenter would ask if we wanted a plumbing wall, Yes. Now plumber where you running those pipes. Master carpenter would give us ok. Next electricians. Rough inspections same week because drywall in next week. Building a house is a tight and fast schedule. Time is money !
My brother in law in Iowa has workers remodeling on and off during last year. No sure what these jack of all trades , master of none are doing. We called the type of person described in your remodel shoemakers.
I was taught plumbing and heating from age 10 to 18 by my Father. 18 Dad said go to work at larger shop to learn more and experience more complex builds. I worked plumbing ft/pt when going to college full time. 1975 AAS chemical technology, 1975 passed Master plumber exam with 100% a record, 1976 BA chemistry, 1978 MA chemistry.
Experienced Master contractor would bring in the men to complete your remodel in one week. Then finish after drywall in less than a week.
Did you sell or rent after the reno ? It’s sound very similar to my COVID rehab. Fire in January 2020. Complete gut but not tear down. 2000 sq ft, 4 bed, 3 bath. No expansion.
Sold in March 2022 just before interest rates started going up. I made a killing.
What’s interesting is that throughout the process I tried to sell it to developers for land value or off market buyers at a discount. I wanted to unload the project or at least put my mind at ease. Several buyers low balled me with offers around $1.7M. If they came up another $50K I would have sold. Before putting it on the market I had an off market buyer in contract for $1.9M. But they got cold feet—thought they were overpaying.
Once I put it on the market with a multiple bid situation, it sold for $2.3M.
Congrats! I rented it out for $8000 a month, a $1,300 a month increase. I plan to hold the property forever. I don’t like turnover and creating tax liability.
Did you do a 1031 exchange? If not, what did you do with the proceeds and how much taxes did you pay?
I’m really focused on cash flow, not so much net worth as a retiree.
It’s ironic, but the bear market has boosted our estimated cash flow by over $35,000. So it’s now easier to stay retired.
I missed your question because I no longer get notified when comments are posted. Where did that notification option go? I only came back here because you updated the article.
Anyway, I did a 1031 exchange–my first one ever–into a 8 unit apartment. I got into apartment investing around the same time I started reading your blog 10 years ago. I think it has worked out better than single family homes.
I normally don’t like to sell but in this case:
1. The house was too nice for a renter. The finishes would get ruined.
2. I had too much untapped equity in the house which I can’t refi out (I don’t have enough income–sound familiar?)
3. The increase in sales price outpaced the increase in rents. I probably could have rented it for $8000. That’s a 24 GRM on a $2.3M house. My apartment was purchased at a 18 GRM with a market GRM of 13. I’m already halfway to achieving market GRM.
After reading this, I feel pretty happy about our recent remodel. We completely gutted the main floor of our house. 2000 Square feet total including 2 bathrooms, kitchen, plumbing, flooring, paint, trim, windows, and everything else. It took 4 months start to finish. Our contractor only missed one day when it snowed a foot but stilled showed up to the house to plow our driveway. Our biggest pain points were the windows, appliances, and fireplace. We originally budgeted 100k and ended up spending 200k. I blame that on my wife. Her tastes are much nicer than mine. :)
Our contractor gained 3 more jobs from our referrals. We plan on using him again on our condo remodel this winter and he lowered his rate because of the referrals he received from us. Bye the way, we didn’t get permits which sounds like it saved us a ton of time and headaches.
Big remodel and big over budget! But glad you guys got it done.
What was your thought process behind not getting the work done with permits? You definitely save time and on property taxes.
We live in the country, so I figured we wouldn’t get caught, and we didn’t. Secondly, I feel like I pay enough taxes already. I’m not gonna pay anymore then I’m absolutely forced to. I consider permit costs taxes and the time it wastes as a tax as well. I figure I pay my fair share.
As far as property taxes, I pay enough already.
Good points. And if the work was done properly, all the better.
However, no permits may hurt on the back end when you sell. As some buyers may not be willing to pay full price for unpermitted work. So one compromise I think works is if you do SOME type of permitted work and have it on your 3R report a year before you sell. This way, it eases the buyer’s mind.
I agree, but if the buyers think it was original no one is the wiser
In SF, so much work is done without permits for all the reasons you described about DBI. My simple windows replacement project in 2020 was delayed 6 months to the middle of winter (February) because they wouldn’t process the permits in the normal way. And for the delay and fee, they never came out to inspect – not for the 10 windows, nor for the roofing. (They did for the Solar install the following summer – I stuck to a local installer who had established relationships with the city folks)
But with so much done without permitting, esp in the Sunset, the buyers aren’t penalizing so long as the work is done to code. (Some of those lower level conversions are comically bad). Like Bill, I’m not going to engage them when I have a choice.
I did a major remodel (which included legalizing a detached garage into an ADU, foundation work and all new systems) and it went way longer than I expected. The permitting process was slow. Every time the plan came back with comments it would take another month to get it reviewed. At the time I was self employed with an office right across the street from the building department. I spent hours waiting there. This is even with working with a trusted friend doing most of the work. He couldn’t control the subtractors either. I went through 3 different plumbers. For some reason, the second one just left the job. I guess he found a more lucrative job. I felt I was a good customer and always paid on time. For inspections, we learned to call one month ahead as that how far out the inspection appointments were. Thankfully I found all the inspectors to be professional and helpful. I decided to use the same window guy for my primary residence. I thought hey this guy knows me and I’m a repeat customer so there is trust there. Nope, he left me hanging and I’m trying to locate him to serve him small claims court paperwork.
In the end the house turned out great and I’m grateful there were no major problems. I did learn a lot through the process but yeah major remodeling is too much stress. Probably repainting, changing fixtures and sprucing up landscaping is the most I would want to take on now.
Ack, so frustrating. It’s like the rules of home construction are different from the rules of other types of businesses.
During the remodeling process, always feel so terrible. But once it’s done, it feels so good for so long. I’m glad things eventually worked out for you.
So far my experience has been good… reno of basement and attic at the same time, basically adding 2000SF of living space. Contractor started the first week of April, and has about 3-4 weeks left. We lost a week due to the permit office had employee turn over so inspection was delayed. We lost another half week cause the plumber got Covid. Then we lost another half week because the drywall/ceiling sub needed clarification (which was already worked out) so they asked a question and left for a week. Tomorrow is flooring, ceiling and final painting. The end is near. So far tracking $30k under budget but never know where it ends. I had the benefit of sneaking this project into an available window he had though. The contractor has a $800k Reno on the house at the end of the block starting this week, so he needs to wrap up. Our contract is to complete by 6/30 or penalties start accruing against him. I will easily let him off the hook when done due to service so far, but it’s good that he has skin in the game.
Lucky to have the guy versus the experiences others have had. He also has a carrot though as I have 3 other major Renos planned in the next 5 years ( adding another 2 car garage with in-law suite, a three season room expansion and redoing master bathroom suite)
Like you said, when you find a good guy you keep them.
After checking with the neighbors (all of which gave high reviews) this guy has installed well over $4M in Reno’s on our block alone in the last 5 years.
Probably helps that I work for a large GC myself, no tricks or games can be played when I use all the same suppliers and have direct influence on his trade partners. Helps to have friends in high places.
Ha! According to your list I should buy a fixer upper…BUT I know better. I grew up in a “project” house.
My folks bought land and started building their house when I was 8. They saved a little bit and built the downstairs, took out a loan and built the upstairs. Then saved and did cupboards, tiling, curtaining etc. for each room.
I was in my twenties and the driveway and some tiling still wasn’t done. By then normal house maintenance kicked in, geyser burst, etc. And of course the neighbourhood squatters moved in so along with having frequent electricity outages, property values sunk.
So I’ll say thanks but no thanks. I’ve had enough of building projects and contractors.
I’ve gotta ask, what does “neighborhood squatters” mean? I my neighborhood, that would be squirrels.
Sorry for the late reply. I didn’t get a notification.
Basically it’s this:
https://unequalscenes.com/durban-metro
My house remodel took 2 years for the upstairs. I did it without permits and went one room at a time. I was lucky with my contractor, and I’m very happy with the interior style. You are correct about the gap closing between new builds and remodel prices. It’s a lot to take on and you need a big reserve for surprises. Personally, I wouldn’t buy another fixer upper again because I don’t have the time and the stress is too much. I agree with your parameters on when it’s appropriate to buy a fixer-upper, with the most glaring points being under 40 with no kids!
Yeah, I believe they will trade at a premium, and another big reason why is a labor shortage. I wrote a similar post about the demand for housing but unwillingness to earn sweat equity. A remodeled house sold for $1.8 million in our neighborhood. The sellers bought it for $1 million in 2019!
People don’t realize what a difficult yet underpaid job construction is, not even counting electricians, plumbers, and masons. They should be paid more and that’s now happening.
Who wants to do back-breaking work in triple digits making $65k, when you could earn similar or more working in an office or warehouse?
Completely agree with all your points. Remodels and dealing with contractors/tradepeople are a nightmare so unless you’ve already had experience or a great reliable team in place, it’s best avoided.
Two points. First, for real estate investors, forced appreciation is a key way to unlock value, so it’s often a necessary evil. Second, everyone thinks their remodel is worth a premium, but a lot of people, esp at the higher end, refuse to “pay for someone else’s bad taste.” Most people are not interior designers and have bad taste. Part of the fun of a remodel is so you can design to your own lifestyle/taste, so to get that premium, you’ve got to anticipate what the current mass luxury trends are and keep it neutral and slightly generic like developers do. And even then, after a few years, it will look fairly dated so that premium fades unless you’re a flipper or move in soon after a remodel.
We’re mostly in the Hamptons these days, and one of the fun things to do here is hit the estate sales/demolition sales for bargains. The super wealthy will tear down homes to suit their tastes, so you’ve got near brand new kitchens/cabinets/fixtures/viking stoves, etc that are only a few years old on sale. They advertise, “bring your contractor” so you can haul things away that same day.
“Second, everyone thinks their remodel is worth a premium, but a lot of people, esp at the higher end, refuse to “pay for someone else’s bad taste.”
THIS is absolutely correct. And often, the wealthier you are, the more electric your tastes. And if you have custom everything, it could be a royal PITA to try and repaint and replace. Special order everything, and then it’s a disaster.
I know one home in SF where the owners put in maybe $10 million dollars to remodel. A perspective buy thought it was trash and wants to redo it!
You remodel to enjoy or you remodel as an investment. The choice is yours.
When it comes to electricity, my taste definitely is 220 vs. 110 (-; In the Midwest, I would guess their is a much smaller remodel premium. Most of the blue-collar workers there want to tackle the job themselves to save money.
I think years and years of Fixer Upper-type shows have ruined a generation’s expectations of what remodeling is actually like.
Could be! Those shows definitely making remodeling way more simpler than reality. Don’t be fooled folks!
Concur. Buying a fixer upper and making money is much harder than it used to be due to HGTV shows like the Property Brothers and fake real estate gurus who are supposedly experts in the area. Bottom line: Too much competition from people who don’t know what they are doing.
Nice post Sam! We’re going through 2 remodels (full gut jobs) – one in Montreal and one in Florida (vacation rental). The Montreal house is almost at the 2 year mark and Florida is at the 1 year mark. Both will be done soon-ish but our main issue has been permitting (it took over a year to get a permit in Mtl and 6 months in Florida). Not to mention delays in materials + added costs! Hopefully they’ll be worth it on the other side.
In any case I enjoy your blog – keep at it!
What an ordeal. In agree with your conclusion and recommendations, but I think you could also write a good article about choosing a contractor to avoid some of the headaches you experienced. I’m curious if you would do your due diligence differently if you could do it over or if it really could be avoided (it’s like that sometimes). A good contractor will be in high demand, but is with waiting for. A good contractor will have a portfolio, references, and experience on houses like yours. A good contractor will keep you up to date on problems and work completed on a daily basis. Ours took before and after pictures and sent daily email updates. I worked with contractors in college (now 45 year old consultant with two kids in N. VA) and found a great one who has worked with us on two significant remodels, including on a house that was in much worse shape than we thought when we bought it. We’re very happy with the work and our contractor has been working on other houses on our street ever since. Great blog, FS
A good contractor is like a good mechanic. Never let them go!
I assigned 35% for the reason for my remodel delayed due to my contractor. The rest was out of our control.
But that’s the thing with remodeling or doing any big project that requires a lot of different input materials and people. The more you rely on more things, the more that can go wrong.
I’ve known my contractor since 2014, when he remodeled my other house. So I trusted him to eventually get the job done. He is relatively good value as well.
The main thing that prevented me from firing him was that I knew he would eventually finish. Starting over was too painful. Also, I had found tenants for the upstairs in October 2020, two months after I moved out.
Details coming in an upcoming post!
I expect the higher costs of remodeling would also make new construction relatively more valuable. By definition it is as remodeled as it can possibly be!
By the same logic, yes!
The main problem is that new construction tends to be in locations that are less “prime.” But with a more spread out and work from home work for us, maybe it doesn’t matter as much.
Oh man, your experience brings back bad memories for me. I gut-remodeled a bathroom once and boy was that an intensely stressful experience. It gave me my first gray hairs. Picking out the fixtures, tiles, and cabinets was exciting at first. But it also became overwhelming very quickly. But in retrospect that was definitely the easiest part.
Dealing with delivery mishaps and installation mishaps made me scream in my pillow countless times. The countertop got cracked in front of our home and caused a several week delay. The custom cabinets didn’t fit properly because the walls weren’t even enough. And getting the tiles lined up properly should have been easy but was another headache.
Anyway, I’m very pleased with the final result but man I never want to do that again. Looking at demo pictures and recalling all the difficult events is a good reminder to me not to every bother with another remodel. I need to go destress now. My blood pressure went up reliving everything and writing this comment lol.
Oh yes! I hear you. So many things have to go right, that inevitably, so many things end up going wrong.
Doing the process is always so painful. But once it’s done it feels so good. But then there’s the race against time and aging as well. So if you are to Remodel, it’s important to Remodel with a timeless design.
I’m 37, single, net worth of probably $250,000, passive income of $75000-$120,000 (depending on local section 8 rental policies) and will be buying a fixer upper.
I’ve done mini renos of many condos in DC, and with the market as it is now, buying a fixer upper, fixing it, and living in it for two years then selling seems to be the best way to make money with my owner occupied 5% down conventional loan.
I might be ready to buy in October, so, we’ll see what the market brings then as far as prices, inventory, and interest rates.
I’m curious how you generate 75 – 120K of passive income on a net worth of 250K? That is an impressive return. Section 8 rentals only?
Congratulations on Generating passive income equal 30%+ of your net worth every year!
You’ll have to show us your secret! Thanks
Kudos for the approach and for dealing with the DC Government. From what I have heard from others, they are not the easiest people to deal with.