Mark Bristow
13 Jul, 2022
Fact Checked
If home improvement is your passion, you may feel tempted to snap up “the worst house in the best street” at a bargain basement price and fix it up yourself. While you could “flip” a fixer-upper house to sell at an auction, you could also transform it into an investment property to rent out, or a home you’d be happy to live in.
But there’s more to fixing up a fixer upper than what you see on renovation TV shows. Before you roll up your sleeves, you may want to consider some of the potential pros and cons, as well as some of the other considerations that may be involved in your project.
If the property you’re looking at has “good bones”, you may largely need to make some cosmetic upgrades to get it into condition. But bigger projects that involve more specialist trade expertise, such as rearranging the layout of the floorplan, adding extensions, or repairing underlying structural problems, could end up costing you more time and money.
Consider getting a building and pest inspection before committing to a fixer upper, as this can help you find any hidden problems that could complicate your plans.
Depending on the scope of your project, you may need to apply for council approval before you can start renovating a property. There may also be limits on how many storeys the building can have, how far it can be extended, or what can be done with the trees and landscaping.
While some TV renovators are notorious for blowing out their budgets, you may not have that luxury. Before your property project becomes a money pit, think about what work will be involved, consider getting multiple quotes from qualified tradespeople, and plan your budget accordingly. Consider keeping a contingency buffer in your budget (such as, say, ten per cent) to help take care of unexpected expenses.
Living in a property that’s currently under construction may not be comfortable for you or your loved ones. Depending on your situation, it may be worth looking at alternative accommodation options while the work is taking place, even if that means relocating elsewhere for some time.
There are a few finance options you may be able to consider to renovate a fixer upper, with the best choice depending on your personal financial situation.
If you already own your home or an investment property, you may be able to refinance that loan to access the equity in that property to pay for the renovation of a second. You may be able to access your equity as a lump sum or a line of credit.
A construction loan could be an option to consider for a larger-scale project that’s closer to a full rebuild. Rather than borrowing money as a lump sum and paying interest on the full amount, a construction loan is where you draw down money to pay for each stage of the construction project as it’s completed. This means that the bank or mortgage lender may be more involved with your construction project, and make regular valuations over the course of the project. You’ll also need to engage qualified and licensed builders and tradies, as you likely won’t be able to get a construction loan as an owner-builder.
Another potential option could be to apply for a personal loan for home improvement, whether as a lump sum or a line of credit. This can let you keep your renovation budget separate from your home loan, which may put more flexibility into your personal finances. Keep in mind that the better your credit score, the better the interest rate you may be approved for on a personal loan.
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Fact Checked
This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.
Mark Bristow
Personal Finance Editor
Mark Bristow is RateCity's Home & Personal Finances Editor, and an experienced analyst, researcher, and producer. Focused primarily on Australian mortgage and home loan expertise, he has been a journalist and writer in the financial space for over ten years, previously researching and writing commercial real estate at CoreLogic. In the years since, Mark has worked for the Winning Group, Expedia, and has seen articles published at Lifehacker and Business Insider.
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