By: Melissa Dittmann Tracey

Buying a fixer-upper home can be a gamble; here are ways to come out on top.

Purchasing a fixer-upper home — one in need of some TLC — could mean scoring a home at a major discount, renovating it into your dream home, and possibly even doubling its value, or more.

As home costs soar, fixer-upper homes for sale appear to be gaining appeal. A consumer survey from RE/MAX found that 56% of 1,000 prospective home buyers would consider purchasing a fixer upper in need of remodeling if it meant getting a lower price. And it didn’t matter whether the remodeling was cosmetic or structural.

Learning from Mistakes in Buying a Fixer Upper

Daniel Cabrera purchased his first fixer upper in Granite Shoals, Texas, in 2012 for just $30,000. The home’s value, post-renovation, was estimated to be five times what he paid for it: $150,000.

“The home needed some updating, but it didn’t seem too bad,” he recalls. He estimated about $25,000 in repairs, but soon discovered the home had no sewer or septic tank, no HVAC, a faulty foundation, and lots of needed repairs. “I didn’t realize any of this until I brought in a few contractors and they started pointing out all the problems.” He realized the estimate was closer to $75,000 in repairs. “I didn’t budget for any of these unexpected items, so I had to pivot and resell it to an investor.”

Cabrera, now the owner and founder of Sell My House Fast SA TX, has since renovated 200 fixer-upper homes, primarily in Texas and parts of Ohio. His approach now includes conducting thorough cost analyses and inspections, and its paying off. He has sometimes doubled or tripled the value of a home post-renovation.

15 Tips to Guide Your Decision About a Fixer Upper

Here are ways to determine if a fixer-upper house is right for you.

#1 Consult the Pros for Fixer-Upper Advice

A real estate agent is key to determining the home’s value and can guide you through the process, from identifying fixer-upper houses for sale to calculating the potential post-renovation value. They can also recommend reputable contractors, who you’ll likely rely on for the renovation. In vetting contractors, ask for photos of and references for past projects.

#2 Gather Contractor Opinions and Estimates for the Fixer Upper

Bring in contractors to walk through the property and price out renovation costs before making an offer. Ask contractors for a written cost estimate (including prices for materials and labor). “To determine your budget, it is important that the contractors estimate be itemized so that you can clearly distinguish between what you ‘need’ and what you ‘want,’” says Jared Blumberg, a real estate agent with Compass and co-founder of Werner Blumberg Group in New York, N.Y. Also, “you’ll want to consult your real estate agent and make sure whatever you plan to update is not just appealing to your needs, but also the needs of the next buyer.”

#3 Consider What You Can DIY on a Fixer Upper

Taking on some home renovations yourself could save you up to three-fourths of the project costs, according to the U.S. Census Bureau’s American Housing Survey. Projects that carry higher labor costs — like adding landscaping or insulation, building a deck, or replacing windows — tend to offer the largest savings through DIY. But be realistic about your expertise and skill set. Taking on projects that are too difficult could result in delays, costly mistakes, and unprofessional results that could hurt your home’s value.

The Census Bureau study spotlights some of the potential cost savings from DIY:

Adding new landscaping

Estimated professional cost: $4,702
Estimated DIY cost: $1,191
Cost savings: $3,511

Redoing a bathroom

Estimated professional cost: $11,080
Estimated DIY cost: $3,776
Cost savings: $7,304

Replacing windows

Estimated professional cost: $5,419
Estimated DIY cost: $2,002
Cost savings: $3,417

Replacing insulation

Estimated professional cost: $2,997
Estimated DIY cost: $1,120
Cost savings: $1,877

Installing a deck

Estimated professional cost: $9,314
Estimated DIY cost: $4,103
Cost savings: $5,211

#4 Figure in Permit Costs for Large Fixer-Upper Projects

Large-scale home improvement projects typically require permits, which could cost $400 to $2,500 and up, according to Angi. For example, adding rooms to a house or work on the home’s plumbing or electrical often require permits. Municipalities want to ensure projects are done correctly, safely, and up to code. Check your local rules about permits. Ask your contractor if they’ll be filing the permits on your behalf or if you’ll need to.

#5 Factor in Alternative Living Arrangements While Your Fixer-Upper Is in Progress

Consider where you’ll live while renovations are completed. Smaller or contained renovations, like redoing just a single bathroom, may not require having to relocate. But larger projects — like home additions or the removal of asbestos or mold — may require alternative living space, like an extended stay hotel. This can add $2,000 to $10,000 or more to your costs, depending how long you’ll need to relocate, according to Angi’s estimates.

#6 Put the Fixer Upper to a Comps Test

Your real estate agent can review homes that are similar in size and in the area to help assess the home’s value now and after renovation. “It is imperative to look at the property’s location, condition of home, and potential post-rehab value,” Cabrera says. An agent can find comparable houses that have recently sold and take an average price per square foot to determine what the house may be worth — an important data point in framing a fair offer.

#7 Calculate a Fixer Upper Fair Purchase Offer

Consider the home’s current versus potential value based on the improvements you have planned. One way is to subtract the estimated costs of upgrades and repairs from the fair market value of the property (or what it would be worth if it was in good condition). That could be your offer price.

However, it’s not always that simple. “It may be tempting to subtract the price of the remodel from the asking price, but sellers are not going to be convinced of that equation,” says Christine Dupont-Patz, a broker and co-owner of RE/MAX of Cherry Creek in Denver. “In some low-inventory markets, even homes that need a lot of work may get multiple offers.” Consider the remodeling costs, the potential payback, and the realities of the marketplace in framing your offer, she says. “Having a realistic budget will help keep you on track and prevent buyer’s remorse later on” .

#8 Complete Inspections for the Fixer Upper

A home inspector looks beyond the home’s aesthetics to evaluate the home’s systems and mechanics. “Inspectors are crucial in helping to find hidden problems,” Dupont-Patz says. “So many issues can’t be seen until you get an inspector in the home. I’ve seen some inexperienced buyers get so caught up with the finishes — like the paint, tile, flooring — that they ignore the major systems. But ugly paint is an easy item to fix. Updating an electrical system is not.” An inspector can check the home’s systems to determine if any repairs are needed, she says. You might consider additional inspections for radon, mold, lead-based paint, septic, pests, or termites and the foundation.

#9 Leverage a Home Inspection Contingency

Depending on how competitive the housing market is, you may be able to leverage the results of a home inspection in your purchase offer. With a home inspection contingency, you could negotiate with sellers to make repairs, or request cash at closing. However, sellers don’t have to agree; they could cancel the deal. Also, if the home is being sold in as-is condition, you likely won’t have the opportunity to negotiate repairs.

#10 Beware Budget Busters and Hidden Costs for a Fixer Upper

Common hidden costs with a fixer upper include permits; utility upgrades (for example, HVAC, water heater, and outdated electrical panels) and landscaping, Cabrera says.

“Some of the biggest costs that often get overlooked are generally the less ‘fun’ items,” Blumberg adds. “Your project may require that you upgrade the electrical or plumbing. Depending on the job, you may need to involve an architect or engineer, which can all result in special permitting. These can be big ticket items that may not be avoidable. A great contractor can prepare you for this when deciding if the project makes sense for you.”

Also, seemingly small projects can quickly add up. For example, changing a room’s floor plan by knocking down or building new walls or rerouting electrical work or plumbing could easily cost more than $10,000, according to Angi.

Be leery of big-ticket items like structural problems. A foundation repair averages $5,000; a foundation replacement could cost anywhere between $20,000 to $100,000. Consult a structural engineer if you suspect problems and get repair estimates in writing.

#11 Cushion Your Fixer-Upper Budget

Have an emergency fund. “Add on, at the very least, a contingency budget that is equal to 20% to account for anything unforeseen,” Cabrera suggests.

#12 Line Up Fixer-Upper Financing Beforehand

Set aside enough money for the renovation and also the down payment and closing costs (without completely draining your savings). If you’re planning to fund the repairs with a home equity or home improvement loan, get preapproved for both loans before submitting an offer for the home. Consider making an offer contingent on getting both the purchase money loan and the renovation money loan. That way, you’re not forced to close the sale when you don’t have a loan to fix the house.

#13 Look into Fixer Upper Special Financing Options

Home renovation loan programs can help fund renovation costs. The Federal Housing Administration’s Section 203(k) program and Fannie Mae’s HomeStyle loan are popular home remodel loans. They’re designed to help homeowners purchase or refinance a home that needs rehabilitation, by allowing them to finance the purchase and renovation of a home into a single loan.

#14 Prioritize Fixer-Upper Projects for Greatest ROI

To get the biggest bang for your buck, “concentrate on the repairs or improvements that will bring the most change in the value of the property,” Cabrera says. This can make your investment pay back over the long haul. The National Association of REALTORS® and the National Association of the Remodeling Industry publishes the “Remodeling Impact Report,”which highlights projects that tend to offer the biggest returns at resale.

#15 Determine Your Risk Tolerance Before You Decide on a Fixer Upper

Buying a fixer upper isn’t for everyone. “There’s no doubt this is a risk, but it can be a calculated risk,” Cabrera says. “There are several things you can do to mitigate the risk,” like having a home inspection, gathering contractor estimates upfront, and working with an agent who is a REALTOR®, a member of the National Association of REALTORS®, to carefully assess the home’s value beforehand.

“Fixer uppers are a lot of work, but they can also be very rewarding, both personally and financially,” Blumberg adds. “If done right, every dollar you put into a project you could get out $1.50 to $3” when you go to sell one day.”

But be upfront about what you can handle: “Be very clear with your real estate agent about what types of projects you’re willing to take on,” says Dupont-Patz. “For some buyers, a fixer upper means they only want to do cosmetic changes. For others, they’re comfortable removing walls or dealing with structural issues.”

That said, “finding a fixer upper is a great way to get into home ownership,” she adds, especially when finding a home in your ideal neighborhood. “With any renovation project, the most important things to have are patience and flexibility. Projects invariably take longer than planned and may not exactly result in everything you imagined. But with careful planning, you can create a home you love.”