If you’re ready to buy a house, putting in the work on a fixer-upper instead of choosing a home with more amenities can save you a solid chunk of change.
But it can be tricky to tell if a property is worth the investment or will end up costing more than it’s worth.
To figure out if a fixer-upper is a good deal, Scott McGillivray, the host of HGTV’s “Income Property” and a real estate expert who’s invested in over 100 properties, recommends figuring out how much the property would be worth post-renovations and comparing that to the sale prices of other similarly sized homes in the area.
“You have to determine what the after-repair value of your home is going to be,” McGillivray told Business Insider. “Looking at similar homes that have sold that are in good condition, what are they selling for? What is the actual fixed-up value of that home?”
McGillivray shares an example: If you score a home for $200,000 and comparable properties in the area are going for $300,000, you need to invest less than $100,000 in renovations or you’re over-paying.
“Ideally, I would try to make sure there’s a really significant margin, like $50,000-plus, that’s going to give me equity there,” he said.
McGillivray says that choosing a fixer-upper over a more updated home is a “win-win” for two reasons: You get to customize it to your exact taste and you’re building equity it, and thus into your portfolio.
Fellow HGTV stars Chip and Joanna Gaines of “Fixer Upper” also know a thing or two about updating less-than-perfect homes. For the Gaines, choosing the right property to flip comes down to one question: “Is this asset going to depreciate in value?”
If that’s a yes, it’s probably not worth your time. “In the housing universe, if you’re confident or nearly positive that these assets are going to appreciate in value, it’s a no-brainer to buy,” Chip previously told Business Insider. “If you get into complicated markets to where you’re not confident, rent for a season, or rent for a year or two, and let the market sort of calm itself down before you jump in with both feet.”