My #1 Tip for First Time Home Buyers
The biggest piece of advice I give to my first-time home buyers is to: Buy a Fixer-Upper!
Why buy a fixer-upper?
For starters, fixer-uppers are typically the most affordable homes on the market. As a first-time home buyer, that's huge! That means a lower downpayment is required (less out-of-pocket cash) and you'll have a more affordable monthly mortgage payment!
With less cash out of pocket and a lower mortgage payment, you should ideally be able to set money aside for renovations. I recommend gradually doing updates to the home (DIY-ing as much as possible to save money) over the first 2 years of ownership.
Why 2 years?
1) If you sell the home anytime after the 2-year mark, you can avoid paying capital gains taxes. CGT is a tax you'll have to pay on the profit gained in selling your home.
2) It's safe to assume that after 2 years, regardless of renovations, your home should have gained enough in equity that you will either break even (after seller fees/closing costs) or be profitable when you sell.
So, if you can stick it out living in a fixer-upper doing renovations for at least 2 years, you can sell that beautifully updated and highly desirable home to make a *significant* profit! When you sell that home you can roll the money (equity) into a bigger and better house. Buying a fixer-upper and renovating it, gives you a head start in the game of building equity that you wouldn't otherwise have.
What kind of fixer-upper am I looking for?
Your realtor should be able to help you with this, but here are the 4 things I always look for:
Find the ugliest home in the nicest neighborhood. After renovations, those other nice homes will help raise the value of your home beyond what it might be worth in a less nice neighborhood.
Find a home that only needs cosmetic work NOT a home that's falling apart. We don't need to be spending thousands on replacing a new roof, windows, heater/AC unit, or praying for structural damages. Those are huge ticket items that you may not get your money back on and as a first-time home buyer, you may not be able to afford. Cosmetic work is much more affordable and will ensure you a profitable sale. It's also easier to live in a home that just needs cosmetic work rather than living in a complete dump.
Find a home that's been sitting on the market for 80+ days. When a home has sat on the market a long time, you can safely assume the sellers are more willing to negotiate on price, closing costs, and inspection findings getting you the best deal possible.
The golden find is a home that is owned by an older individual and hasn't been updated since the 80s/90s. You know the kind of house I'm talking about! It's your grandma's house... 80's wallpaper, white tile countertops, and laminate flooring. Why? That generation knew how to keep a clean and well-maintained house! I can't tell you how many homes I've seen where the sellers have owned the home for 50+ years, it hasn't been updated since 1985, but the house is spotless and very well maintained, and the inspections come back with very few red flags. You want this kind of house because 1) No one else does and the price will reflect that 2) No major repairs - just cosmetic work.
What should I fix up?
Here are renovations that I would suggest assuming they need updating:
New floors. I suggest LVP (Luxury Vinyl Plank) throughout. Keep it at or under $2/sqft for materials. I suggest LVP because it's easier to DIY install than the learning curve of laying tile or paying someone to lay carpet. It's also a great quality material and buyers love the look of it!
New baseboards. Get yourself a tall, low-profile baseboard. This won't break the bank, but will be a great sell-able feature that you can easily install yourself.
New paint. Ideally, the same paint color throughout the whole home, or at the very least the entire living space and hallways. A nice taupe-grey is great! I love to use Egret White from Sherwin Williams.
Paint/stain all the cabinets. If the cabinets are salvageable (hopefully they are!), paint or restain the cabinets for a more updated look.
New Countertops. Solid white quarts would be your most affordable route. If you do solid white countertops, please do not also point the cabinets white. It's just too much white. If you go with white countertops you can do a taupe, grey, blue, or even green cabinet color.
New hardware. This would include new door handles, new cabinet knobs/pulls, new faucets and shower heads.
New light fixtures.
The most important reason...
When you buy a fixer-upper, you learn what houses are really made of. You learn how to use a drill, paint walls without drip lines, install flooring, fix a leaky faucet, and cut baseboards at a 45-degree angle on a chop saw. All of which are actually very easy things to do! They are terrifying and intimidating at first, but once you do it, you'll have those skills for life. These skills will give you a strong educational foundation on how to maintain and update your home and future homes.
Even if you can afford a nicer, updated, maybe even newer home, I still recommend buying a fixer-upper for the sake of the experience. You learn to get creative and design things, you work with your hands, create a smart budget based on resale value, strive to work within that budget, be smart with your money, and most importantly you learn how to leverage your real estate to build equity.
Our first home was a fixer-upper and the hands-on learning experience we gained is one I wish for all of my clients! If you have any questions, please reach out to me, I'd love to help in any way I can.
Jessica Doberneck of