Financial risks when buying a fixer-upper

With the rising cost of housing in a number of cities in Canada, house hunters are increasingly buying homes that require a little “TLC.” And while housing and design TV repeatedly show us that homes can go from dilapidated to dreamy, there are some potentially serious financial consequences in buying a fixer-upper.Fixer-Upper

“Some homebuyers are drawn to the fixer-upper because they are looking for a deal through which to make a good return on investment. Some homebuyers are drawn to fixer-uppers because that’s what they can afford. In both instances, it is essential to assess all of the facts surrounding your purchase, as well as playing out various financial scenarios. It will help you determine if this is your dream home or your financial nightmare,” says Jeff Schwartz executive director, Consolidated Credit Counseling Services of Canada.

Before you sign for that home, here are some risks to consider when buying a fixer-upper.

How much room do you really have?

If you are planning on buying a fixer-upper, you probably have ball parked and budgeted for the work that you’ll need to do. What you really need to determine is how much wiggle room you are able to come up with in your budget.

The thing with home renovations is that they very often go over budget and over timeline, both of which will add on to costs out of your pocket. If you can anticipate these costs by earmarking a good chunk of your overall budget to go towards unexpected costs, the hit will be less substantial. If you come across extra costs mid-project, you may be forced into a situation where you need to take out more debt, or leave the project abandoned. It’s a lose-lose if you don’t have extra cash on hand.

You can counter this by buying a home in a lower price point, or waiting until you have more cash savings accumulated.

What’s the neighbourhood like?

You’ve heard the real estate mantra, location, location, location? That’s because it’s this set of criteria that will ultimately be able to help your property grow over time. Where is the home in question? Is it near sought-after amenities, like schools, parks, shopping and public transit? These are all criteria that will help your investment grow.

Properties farther away from these amenities are likely cheaper, but come with a little more long-term risk too, so that apparent deal isn’t always as good as it seems.

There are things that just can’t be fixed

For the most part, cosmetic things can be fixed to your taste. The problem is when you discover problems that in some cases (and dependant on the age of the home) just can’t be fixed, and actually threaten the structural integrity of the home. The issue is that you are still on the hook financially for your house.  In the same vein, there are structural items that can be fixed, but at substantial cost, that will have you owing more than you own.

“One way to avoid these costs is to always have a thorough property inspection that will help identify potential problems (and likely costs) before you sign on the bottom line. Sometimes the smart decision is to walk away, but you can’t tell with the naked eye,” says Schwartz.

Has a home purchase got you in over your head with debt? The best way to regain control over your finances is to seize it today. Start by developing a plan to pay down your debt. We can help. Call one of our trained credit counsellors at or check out our free online debt analysis.

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