Buying a Fixer Upper in Philly - Opportunity or Headache?

Philadelphia’s for sale housing supply is currently at an all time low and transactions are occurring faster now than ever before. In a competitive market such as this, some home buyers are now considering buying a fixer upper, even if they weren’t previously interested in a renovation project.

There are many rewards and risks associated with buying a home that needs work in Philly. Below are a few key things buyers need to know about fixer uppers.

What is a fixer upper?

Back in the day, the term fixer upper used to be a real estate agent term for a home that was in disrepair or needed work. Handy home buyers or those with limited budgets would purchase these rundown properties as their primary residence, and bring them up to date over time.

Fast forward to today, the term fixer upper is a widely-known term thanks to the countless house flipping shows you see on TV. Home buyers today are proving that they are not intimidated by a home that needs some work to bring it up to date. 

Competition for fixer upper houses 

With the rapid appreciation of real estate prices over the past decade, the competition for fixer upper homes for sale in Philadelphia is at all-time highs. Developers, contractors, investors, and buyers seeking primary residences are all competing for opportunities.

There is no shortage of video tutorials and DIY project advice out there so home buyers are more adventurous with tackling home improvement projects. This, coupled with historically low housing stock inventory of turn-key properties, is creating more demand for homes that fell into disrepair and need work.

Benefits of buying a fixer upper in Philadelphia

The best feature of a fixer upper is the ability for the home buyer to come in and fully customize the place to their liking. Buyers will be able to create their dream home. This is fun and highly rewarding when the work is done and you get to call this updated space "home!"

All this customization creates value and provides equity that you can unlock in the future via a refinance or a sale, assuming the market moves in the right direction.

Ordinarily in a tame market, pursuing a fixer upper allows you to get a better price compared to well-maintained properties. In a tight inventory market however, like we are seeing today in Philadelphia, the desired discount a buyer will pay for a distressed property is likely lower than a more balanced inventory market.

Pitfalls of buying a fixer upper in Philadelphia

In order to fully renovate a home in Philadelphia, you need cash or a line of credit. This is in addition to the money that you needed to buy the home, so the funds for the renovation can be a barrier for some buyers. Also, banks will not always lend on homes that need a lot of work, and FHA loans are especially difficult to secure for fixer uppers due to stricter requirements.

Cost overages are another big risk when tackling a fixer upper. If the budget is not adequate because there are unforeseen issues, well, how are you going to finish the work? If you are using a contractor, he or she will not continue to work for free, so make sure you have a contingency of at least 10 or 15% in your budget because surprises will occur!

Finally, you will need to decide where you will live during construction. If you are completing a gut renovation and won’t be able to live on site during the fixing, you’ll need cash to either pay rent or a mortgage on a separate property. This can be very stressful and inconvenient. Be sure to factor this in when setting your plan.

Where are Philly homebuyers looking for fixer uppers?

Opportunities to find a fixer upper can pop up in any neighborhood in Philly if you follow the market closely. That said, given the need to both acquire the property and possess the funds to renovate, most buyers will typically search in neighborhoods with lower average listing prices. 

Top Philadelphia Neighborhoods for Fixer Uppers

• Manayunk
• Point Breeze
• Grays Ferry
• Strawberry Mansion

Over time, as more development and rehab projects occur, prices are driven up and there are less fixer-upper deals to be done (think Fishtown or Northern Liberties just a decade ago). If you are in the market to buy a home that needs renovating, pick your neighborhood, set up alerts for new listings, and be ready to act fast before someone else does.