Say NO to Fixer-Uppers

This should be obvious to anyone who has made this mistake once. If you are thinking about buying a place that needs major renovations you should consider it only if:

  1. You are a contractor.
  2. You have a lot of free time on your hands (to deal with contractor drama).
  3. You are cost insensitive – in other words, you are ready to pay a premium for renovations.

If the above does not apply to you, walk away. Everyone seems to know someone who knows someone who repairs and flips houses and makes a ton of money. This is bullshit. Very few people make money flipping homes. 

Four reasons why it’s a really bad idea to get involved with such properties:

  1. Dealing with contractors will be painful and time-consuming. Once a contract starts working, you are basically at their mercy. They can go over budget and take longer than originally promised. And you have no recourse because you cannot fire the contractor halfway through the job.
  2. Somewhat common sense – Since you are paying a contractor to work on your home, your cost of construction will be significantly higher than those of a professional home builder who builds at large scale. Therefore, your return on capital invested and time invested will be lower. Adam Smith figured this out 400 years ago and called it “division and specialization of labor”. In simple words, you should focus your time on activities where you have mastery over others.
  3. Lots of hidden risks – your neighbors might make a fuss about noise, city officials might find you in violation of the local building code, etc.  A friend of mine got his house burnt down because the contractor left the gas on. Thankfully no one was home. None of these risks are worth taking.
  4. You might have bad or strange design sense. Professional builders use conservative interior styling that is easy to sell. You may love your orange marble top, but others may not. In money terms, you will likely not get a return on your non-conventional “bold” renovations. I saw a two-bedroom condo where the owner had redone interior doors in semi-circle arches. Maybe he thought he could sell to Frodo Baggins?

Don’t be tempted by the opportunity to buy a fixer-upper. It’s a bad idea and you will likely lose money and time (unless you are a contractor). Anyone who is telling you otherwise is not your friend or stands to gain from the deal going through.

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