The oft-heard phrase "Buyer Beware" is never more appropriate than when considering the purchase of a fixer-upper. It is essential to know exactly what you’re getting into before buying. It is commonly believed that fixer-upper properties represent easy money that is ripe for the taking -- that you can buy it, do a little work on it in your spare time, and then resell quickly for a large profit. Usually, this simply is not the case. Although, with proper planning and foresight, good profits can be made by buying "distressed" properties at less than market value, making appropriate improvements and repairs, and then reselling.
For many first-time buyers who intend to live in the house while working on it, buying a fixer-upper can be a good option. It’s less risky buying a fixer-upper when you can live in the house while fixing it. And of course, by living in the house for at least 24 months you should be able to avoid paying regular income taxes on the profits.
The most important thing to know before making a decision on such a purchase is to discover what needs to be fixed. A thorough professional inspection is the best starting place, followed by obtaining estimates for projects you can not complete yourself. Don’t be afraid of buying a fixer-upper in need of minor repair, updating, or cosmetic refreshment. Properties with structural damage, or a floor plan that requires major work to remedy, usually can’t be "fixed up" at a profit.
Always have an inspection for hidden damage performed by a home inspector or construction professional before buying a fixer-upper. Make sure that satisfactory completion of such inspections is a condition of purchase in any contract you sign. Then be sure to negotiate to try and get the seller to pay for all or part of the cost of needed repairs uncovered by the inspection. Often, sellers will be willing to lower the sales price to sell the home "as is" instead of paying for the repairs.
Be careful that you don’t overpay. Especially if you plan to resell quickly, paying too much upfront can doom your plans for a quick profit. Research the market for reselling and have an exit plan for selling the house in place before making an offer
When you are spending money on improving a home with the hope of selling it later, give precedence to spending your money on maintaining systems functionality and projects that will stand out for buyers. Things like new paint and removing trash from the property cost little but have an instant impact on curb appeal. Houses that have only cosmetic problems like peeling paint, a trashy yard, bad carpet or wallpaper are the best bet. This is especially true for the first-time buyer who will live in the house for a while before reselling. Fixing and cleaning cosmetic issues is fairly easy and inexpensive. It nearly always gives a good return on investment, particularly when you can do the work yourself. Kitchen and bathroom remodeling usually pays a nice return.