Deciding which Howard County rental property to invest in takes a lot of consideration. The purchase price, location, nearby amenities, and curb appeal are just some of the things to think about.
But have you ever considered purchasing a fixer-upper rental property?
People love to buy fixer-upper rental properties in Howard County and there are plenty of advantages to doing so. However, many property owners fail to weigh both the pros and cons of investing in a property that needs a little extra TLC.
Thus, today we will show you both sides of buying a fixer-upper property so you can better decide whether to take on a project home or invest in one that is move-in ready.
What is a Howard County Fixer-Upper?
A fixer-upper property is a property that needs some rehab before it can be leased to the high-quality tenants your Howard County property management company finds to reside in your property.
The repairs a fixer-upper might need include:
- Light cosmetic work such as a fresh paint job or new carpet
- Roof and wall work
- Landscaping in both the front and back yards
- Foundational work
- Plumbing or electrical work
While some of this repair work may seem trivial at first, it is crucial to look at the bigger picture before making the final decision to purchase a fixer-upper.
Pros of Buying a Howard County Fixer-Upper Property
One of the biggest advantages of purchasing a fixer-upper property is the purchase price. For those that want to get into the rental property business but cannot afford move-in ready homes or for those just looking for a great deal, a property that needs work is often a great solution.
In addition, buying a rental home at a lower purchase price, putting in some hard work to make it look great, and leasing it to high-quality tenants that will take care of your property will add value to the home over time. Called appreciation, this concept is great for those who wish to increase the monthly rent at some point. It also helps if you are planning to sell the home sometime in the future.
In a popular location such as Howard County, it can be tough to grab a nice, move-in ready home for a reasonable purchase price. This is especially true because many property owners don’t want to invest in fixer-uppers because they do not want to invest the time and money to make the property move-in ready.
However, by investing in a property that needs some upgrades or repair work, you avoid a lot of the competition. Even in a competitive real estate market, purchasing a rental that needs work significantly increases your chance of finding a deal.
Increased Positive Cash Flow
Buying a Howard County fixer-upper property at a lower purchase price than that of neighboring properties has the potential to generate more positive cash flow. For instance, buying a rental home below full value price means lower monthly mortgage payments. It also means more money in your pocket when you charge competitive monthly rent rates.
Property Tax and Loan Savings
Since property taxes are based on a home’s sale price, your biannual property taxes will be significantly less if you buy a fixer-upper as opposed to a move-in ready home. In addition, some fixer-uppers in Howard County will qualify for an investment tax credit for rehabilitation costs, meaning you may actually make money off the repairs you put into your fixer-upper.
Lastly, the great thing about this type of investment purchase is that you may also be able to finance the property using a 203(k) loan. This means that your loan amount can be used to purchase the property and make the improvements needed to make the property livable.
Cons of Buying a Howard County Fixer Upper
Although you may be able to save money on a fixer-upper thanks to a discounted purchase price, property tax savings, and even a creative financing solution such as the 203(k) loan, there are possible hidden costs you may run into once the rehab work begins.
For example, you might start remodeling your property’s kitchen cabinets and then realize your entire kitchen actually needs electrical work. Or, maybe you will discover your antique fixer-upper home is covered in lead-based paint. Maybe you’ll find rotten wood in the roof structure, mold in the bathroom, or leaking pipes in your backyard sprinkler system. In the end, this means more money, more work, and more headaches.
Buying a move-in ready house means that you have the luxury of leasing the home to Howard County tenants right away. And that is one of the reasons they cost so much more. However, if you buy a fixer-upper, whether it needs minor repairs or an entire rehabilitation, there will be lots of work involved.
Oftentimes the remodeling process can take months. Even if you only project it to take a few weeks, it is easy to fall off schedule. Dealing with unexpected problems, multiple contractors, and the reality that fixer-uppers take time to fix can be a tough pill to swallow.
Unexpected Costs May Outweigh the Savings
Sometimes purchasing a fixer-upper will cost you more in the long run than if you had just bought a move-in ready home. It is critical you do your research before making a final decision on a fixer-upper property. This includes listing the necessary repairs and upgrades you will be making, investigating costs associated with such repairs, and comparing that to the purchase price of a move-in ready home. Although rare, your remodel could end up costing you more than your initial savings, thus defeating the purpose of investing in a home that needs work done.
In the end, fixer-uppers pave the way for you to be creative, likely save money, and maintain a slight edge in the rental property business when it comes to positive cash flow. That being said, they are not easy to deal with and present numerous increased risks. If you are looking to buy a fixer-upper in the Howard County area, make sure you do your due diligence before making such a large investment decision.
In addition, if you are looking for some help managing your fixer-upper rental once it is complete, get in touch with Maryland’s finest property management company, Bay Management Group. Understanding all things property related, Bay Management has the knowledge, experience, and staff to manage your Howard County rentals so you don’t have to. Though the stress a fixer-upper may cause can only be dealt with by you, rest assured that Bay Management Group will relieve all other stresses related to your fixer-upper once it is move-in ready.