Fixer-uppers may conjure images of very successful TV shows that turn modest properties into beautiful abodes. And as home prices remain high, many buyers are turning to "diamonds in the rough" to enter the market.
Case in point, a Realtor.com® report found that fixer-uppers get significantly more attention from online home shoppers than other older, lower-priced homes—52% more listing page views per property, to be exact.
Yet not every fixer-upper undertaking has a made-for-TV ending. Some could become financial and emotional nightmares.
A recent Hippo Insurance report found that “if given the chance to start over, 23% of fixer-upper owners would choose a move-in ready home instead, suggesting the labor and cost outweigh the value.”
“Unfortunately, HGTV has made it very popular to do 'flips,' and they don't always show when things go wrong,” says Jay Zigmont, Ph.D., CFP, founder of Childfree Trust. “Professionals have experience that you may not have, and often will pass on properties that they know something about that you don't.”
The math behind the trap
Bobbi Rebell, CFP, consumer finance expert at CardRates.com, bought a fixer-upper a couple of years ago and urges buyers to know what they are walking into.
“Assume there will be double trouble, both in terms of time and energy, and in terms of money. The math may be different depending on your purpose. If, like my family, you are buying a fixer-upper because you plan to live in it for years as a family, your economic and lifestyle upside is very different from an investor's perspective. If you plan to live in it, sometimes a fixer-upper can be a bargain, because you get the renovation you choose, rather than paying for the style and amenities that someone else chose,” she says.
When it comes to the math, the framework is simple, but the execution is where people get into trouble, explains Angelica VonDrak, associate real estate broker at Houlihan Lawrence.
“You’re looking at purchase price plus renovation plus a real contingency, versus what the home is actually worth when it’s done,” she says.
According to VonDrak, if your all-in number is brushing up against the after-repair value, you’re not creating value; you’re just taking on risk.
She urges buyers to be strict about their renovation budget and reserves. For instance, in older homes, she said a 20% contingency is a starting point, not a cushion.
“Budgets are almost always underestimated, and resale value is almost always overestimated. It’s critical to look at real comps to understand ARV, not aspirational ones. The market doesn’t reward effort; it rewards outcomes,” VonDrak adds.
Another mistake buyers make is only looking at the purchase price.
Instead, Steve Sexton, CEO of Sexton Advisory Group, recommends you need to calculate your total cost, which includes your purchase price, the complete renovation estimate, and an additional 20% contingency buffer.
Then, compare that number to the After-Repair Value (ARV), meaning what comparable homes in that neighborhood are actually selling for after renovation.
“If your all-In cost lands within 10 to 15% of the ARV, you're in reasonable territory. If your costs reach or exceed the ARV before any renovations, you're not increasing your equity. You're destroying it,” Sexton says.
Sexton stresses that renovation projects almost universally run over budget, and once walls come down, you find what the inspection didn't show.
“Clients often budget $80,000 for a gut renovation, only to find themselves at $140,000 before the project concludes. If you fill that gap with unexpected credit, your deal can quickly take a turn against your broader financial plan,” he said.
What tips can help decide if it’s worth it?
Courtney Klosterman, home insights expert at Hippo Insurance, shares that Hippo’s Fixer-Upper Survey found 62% of fixer-upper homeowners reported spending more than $6,000 on renovations annually, and 15% spend $16,000 or more every year. Another 48% of fixer-upper homeowners reported spending more than $6,000 annually on repairs.
She recommends that buyers clearly define what they hope to achieve with this renovation, whether it’s improving aesthetics, increasing functionality, or adding home revalue.
“The answer to this question will be your north star during the project and help guide your decision-making process,” she says.
Do your research, ask the professionals, and rely on reputable sources before starting a home renovation, and make sure the websites, contractors, and other sources you use are certified or knowledgeable, she adds.
Last but not least, be honest about your own skill level.
“Know your limits and recognize when it is time to call a professional,” she says.
Andy Gibbs, CEO of RemodX, a home remodeling planning website, said that some rules to prevent financial disaster in a major renovation include running a reality check by looking up fully renovated comparisons in the immediate area.
In addition, price the renovation like a pro—don’t guess.
“Use real cost tools to build an actual scope-based budget, not a HGTV guess. Once you have purchase + repairs + 20% contingency, it becomes a math problem—not a design problem,” he advises.
Structural vs. cosmetic
When it comes to red flags that could signify deep financial trouble, they might not be easily identifiable, and some could quickly drain savings.
Lindsey Harn, real estate agent at Lindsey Harn Group, says it always comes down to the "bones”.
“If the home has major structural issues, is falling off a cliff, or is going to have issues that turn into several hundred thousand dollars in renovations, it may be better to skip,” she says.
Jordan Del Palacio, loan partner at Churchill Mortgage, echoes the sentiment, saying that when trying to find a fixer-upper, the top priority should be getting an inspection and having a trustworthy real estate agent to help interpret the data, especially if you don't have experience with major home improvement projects.
“If the home is ugly but has good bones, it can be a diamond in the rough brought to life through sweat equity over time. However, if the inspection determines that there are critical structural issues, you could be looking at tens of thousands of dollars in repair work before you even get started on cosmetic upgrades," Del Palacio adds.
What to watch for
Even before any inspection, you can do some visual checks for uneven surfaces, which might indicate foundation issues, or for strange odors, says Dean Bennett, a residential contractor and president of Dean Bennett Design & Construction.
Another tip: If a home was built before 1980, chances are high it will need a completely new electrical system, and very possibly plumbing, he warns.
“For instance, if you were to find out there’s a break in the sewer line to the street, that’s easily $20,000-$30,000—enough to cause many people to back out of a deal,” Bennett says.
Another cause of damage to a home is poor drainage from rain, which can lead to foundation decay, electrical short circuits, and home settling.
“Look for a slope away from the property. Look for gutters that are in reasonably good shape. Drainage costs by themselves can easily be $15,000 or $20,000 or more and are critical to the long-term health of any house,” says Christopher Duffy, CEO and founder of HummingBird Development, a homebuilding and real estate investment firm.
The opportunity cost
VonDrak says that’s often overlooked as people run the numbers but don’t price in the experience.
“Living in a construction zone has a real cost and can take a serious toll on relationships,” she says, adding that delays, decision fatigue, and the reality that projects almost always take longer than expected are all essential to prepare for—mentally and financially.
“The best projects aren’t the ones with the most upside; they’re the ones where the path is clear before you close. You want known problems with defined solutions, not surprises,” she says.
Additional factors that can take a toll on buyers include ongoing noise and people coming in and out of the house all day long, which can lead to increased stress and anxiety, says Bennett.
From a health perspective, there is constant dust that requires frequent cleaning; and from a safety perspective, there’s equipment posing a tripping hazard, he says.
“It can take a real toll on relationships if a couple is living through a renovation,” he says.
And of course, if you're renting while you own, you're carrying two housing payments, notes Sexton.
“Delays trigger both a financial cost and a personal cost, including your time, energy, and stress level. None of those show up in the renovation estimate. Still, they're real costs,” he says, adding that before you commit, ask yourself honestly whether you have the financial cushion and personal bandwidth to see the project through if it takes twice as long and costs 20% more than planned.
“If the answer is no, the deal isn't as good as it looks,” he adds.
