For those who are looking to invest in the promising Toronto real estate market, buying a fixer upper in Toronto might be a promising prospect, as they often come with a reduced price tag, less competition, and the potential for a profitable resale that can allow first time investors to break into the market. With investing in fixer uppers comes a number of risks, some of which are understood and others that may not be as obvious in the moment. Before you fork over that down payment on a fixer upper property, here’s what you should know to help you avoid an investment nightmare.
It could be a potentially worthless investment
While buying a Toronto-area fixer upper can be a wise investment in some circumstances, there are also several situations that might indicate that the investment isn’t worth your time. Some important repairs and areas of maintenance will require a major time and money investment on top of the investment you’re already making, taking your attention away from other projects and commitments in your life. Don’t forget to account for the cost of your lost time as well as the actual cost when forecasting your budget.
Significant repairs or upgrades are far more costly and time consuming than a simple paint job or lawn manicure, and can include things like the property requiring a new foundation (which can be a project that costs tens of thousands of dollars), significant water damage to the property, and extensive electrical repairs that involve switching from archaic knob and tube electrical wiring to up-to-code modern wiring. Repairs like these can void the lower sales price of the property, instead turning what appears to be a lucrative investment into a money pit and time sink.
It may be worth it if there is only one major renovation item and the property is in a good neighbourhood, but you should always account for the things you can’t see until you start ripping into walls. Adding an extra 20-30% to your budget to account for the unforeseen may make the final profits disappear, but it’s worth doing that math to make sure you aren’t backing a loser.
Playing it safe and smart
Before putting your name on the dotted line of a fixer upper, it’s recommended that you seek our the services of a professional home inspector who may give you a better idea of the true extent of the maintenance and repairs that will be needed, allowing you to assess your budget and decide whether or not this is an investment for you. Once you have a better idea of what repairs are going to be needed and what they are likely to cost you, you may decide that you’re no longer interested and can move on to more worthy investments.
If you decide that you’re still interested in the property, you can use this information to bid down on the home – but know that this strategy may be unsuccessful depending on demand, the area where the home is located, and your own negotiation skills. Your potential Toronto property may still be worth the time, money, and effort if it is located in a neighbourhood or part of the city that is in high demand from renters or other real estate buyers. These hotly contested areas of the city can often allow you to raise the price tag on your investment to the point where may be able to recoup any money spent on major repairs and maintenance, allowing you to turn a profit.
Not always a great deal for real estate investors
Depending on the state of the home that you’re considering purchasing, buying one can rival the price of simply investing in a newer home in the Toronto area after repairs, maintenance, and upkeep have been professionally addressed. The ideal fixer upper home will still require some TLC, but will be far more manageable than an investment that will require serious repairs or renovations. For this reason, buyers are cautioned from rushing into a deal involving fixer upper properties and thoroughly understanding the true scale of the time and money that will be required before undertaking this potential home improvement project/real estate investment.
For those who are interested in buying a fixer upper property in the Toronto area, hiring the services of a professional property management firm and investment Realtor like Highgate Properties is can alleviate much of the stress that can come with these investments. Highgate will help you find the right property, accurately forecast costs, and negotiate a deal with the seller. Once you’ve bought the property, Highgate’s property management services gives you access to trusted contractors who will respond to repair emergencies in an effective and responsive manner, as well as our expert team of property management experts who will oversee the day to day operations of your rental property and help you get the most out of your fixer upper investment. Our contractors are also capable of taking on most major renovation projects.
For more information about the property management and realty services offered by the experienced team at Highgate Properties, contact us today.