Rental properties have the potential to net you a return in two different ways: You can charge more in rent than you pay on the mortgage, resulting in a stream of revenue that could last indefinitely, and you can invest in a property with the potential to appreciate over time, so you can eventually sell the property for more than you paid for it.
In either case, if you can get a property for less money up front, you’ll have the potential to earn more money. This idea is partially why “fixer-upper” properties are so popular. Prospective landlords or property investors believe they can purchase a problematic property for a low amount of money, invest some extra time and money into making it more livable, and collect on the home’s final value (which they expect to be higher than the combination of their total investments).
But are these properties really worth your time and money?
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Judge the Scale
Obviously, not all fixer-uppers are going to require the same amount of work, and what qualifies as a “fixer-upper” to you may not to someone else. Almost any property you purchase is going to require at least some repair and maintenance before you try to attract tenants for it or sell it to other buyers; the question is, how much is it going to take?
If you can knock out the repairs in a weekend, such as by replacing the carpet, repainting the walls, and having the place professionally cleaned, you shouldn’t worry—these projects don’t have the power to significantly change the value of your investment.
Related: How I Bought a Fixer-Upper Fourplex for $1 Down: A BRRRR Case Study
However, if you’re looking at a project that could take months to complete, you may want to reconsider. Not only will it take a much bigger investment, it will also delay you from collecting income to…