Thinking Of Buying A Fixer-Upper? Here Are 5 Things A Real Estate Agent Says You Should Know

It's "one of the best" options for first-time homebuyers. 🏠

A kitchen renovation project.

A kitchen renovation project.

Buying a fixer-upper in Canada isn't for everyone, but if you're willing to take on a home renovation project it can make for a great investment and can also be a great opportunity for first-time home buyers.

There are fixer-upper homes for sale in every real estate market in Canada, but aside from typically being listed at a much lower price, there are plenty of other things to look for when buying a property that needs a bit of work done.

To get a better sense of the process of buying a home that needs renovating, Narcity spoke with Toronto-area real estate agent Trish MacKenzie. She has experience helping her clients purchase fixer-upper homes and has carried out several home renovation projects of her own.

She shared her wealth of knowledge about the Canadian real estate market and home renovations to put together a list of things you should know before buying a fixer-upper home.

Here are five things she said you should keep in mind.

Search for a home's hidden value

When looking for the right fixer-upper, the first thing MacKenzie said to keep in mind is what attracts people to homes in the first place — how they look inside, or in other words, staging.

"There is a social side of identifying it, of understanding what kind of turns other people off and how you can see past it," MacKenzie explained. "We tend to look for opportunities that others might overlook."

Every example of a home like this can be different, but MacKenzie shared how online listings lacking photos, or listings with "dingy" looking "cell phone pictures" could present a potential opportunity, solely because most people wouldn't take the time to look at a listing that lacks clear information.

On the flip side, she explained homes advertised as an "opportunity" for renovators, first-time homebuyers, or fixer-uppers may not be the best option for several reasons, including competition and the seller's intentions.

As for what specifically to look for in a fixer-upper, "We're looking for things that are structurally really sound," MacKenzie said. "I went into a place and one side of a door jamb was literally three inches higher than the other side and the whole floor was tilted into the middle. It's the first time I've actually gone [into] a home and I was like, 'we should probably leave'."

On top of looking at the safety and structural integrity of a home, she added anything to do with water damage or un-levelled flooring that feels like you're walking over waves should be avoided.

Fixer-uppers can be great for first-time homebuyers

According to MacKenzie, a fixer-upper is nothing short of a great real estate opportunity for first-time homebuyers.

"I genuinely think it's one of the best ways for first-time homebuyers to find their way in because you get property for cheaper," she explained.

Of course, cost is a major issue in the Canadian real estate market right now, with the average selling price for a home in this country at $729,044 in May. Depending on the market, you could find a fixer-upper for well below that price, but there is no guarantee.

MacKenzie shared how she was able to purchase a house in Toronto that needed renovations for more than $200,000 under the area average. She said $50,000 worth of renovations over four years has increased the value of her home by roughly $600,000, due to the combination of that work and the home's market value.

But she acknowledged that for some, money isn't the issue when it comes to buying a fixer-upper.

"The biggest deterrent is not necessarily the cash, but it's the fear of taking [on] that kind of a project," MacKenzie explained. "Usually, when you're like 'I'm about to buy my first home. I need to put this down payment and I've never had a transaction this big.' And, 'all of a sudden on top of that I have to consider like putting $50,000 into renovating a home and hiring somebody to do that.' It's daunting. It's scary."

With her years of experience in the Toronto real estate market, MacKenzie said anyone deciding whether or not to jump into a home renovation project of any kind should know there is no shortage of experts you can reach out to get the answers you need.

You can pay for your renovation with your mortgage

Another thing first-time homebuyers or anyone considering buying a fixer-upper might not know is you don't need to have cash for a downpayment and money available to pay for a renovation all at once. You can add the cost of your renovation to your mortgage.

"If you tell the bank that your intention is to renovate, often there are programs that you can add into your mortgage amount," MacKenzie explained. "You have to have a contractor come in, do a quote, [and] provide that quote to the bank. And then you could potentially be approved for a portion of your mortgage to be associated with your renovation."

"If you're able to find something under the budget that you're given by the bank, you're putting yourself into a good position," MacKenzie said. "You don't need to use up all of the money that you are being loaned."

This option on top of Canada's new Tax-Free First Home Savings Account (FHSA) can be a great way for first-time home buyers to save up and eventually be able to afford buying a fixer-upper as their first home.

You don't have to renovate everything right away 

In our conversation with Mackenzie, she spoke a lot about the need for aspiring renovators to separate their wants from their needs, understanding that in most cases you won't be able to buy a fixer-upper and completely transform it before you move in.

"If you're able to find a space that, in the short term, maybe there's small things you can do that will make a big difference, but you can move in immediately," she said. "And then over time, [you can] really make the space your own."

That example is what MacKenzie described as, "where the best opportunities are," particularly for first-time homebuyers.

"Maybe it's not brand new with engineered hardwood and a brand new kitchen and quartz countertops and whatever else we've decided are our necessaries nowadays," she joked. "In two years, maybe you renovate the kitchen and you put in Ikea by yourself. And that's totally doable."

Be patient and flexible

Taking this advice into account when thinking of buying a fixer-upper, MacKenzie said it's also important to be both patient and flexible when it comes to your renovation plans.

"Always budget extra. Extra in money and extra in time," she advised. "Things always take longer and there are always surprises."

Having spaced out her most recent home renovation project over the course of four years, MacKenzie said at one point, plans to have her windows redone and put a sliding door into her walkout cost much more and took much longer than expected.

"We had to create a structural beam in the middle of getting that replaced," she recalled. "It wasn't part of the plan."

Examples like that are why she called flexibility a "must."

"It's a must when you are looking for a home because every house is different. But it's also a must with what your plan is for your renovation too," she explained. "There will be punches with a renovation. There's no question that something will go wrong."

Stuart McGinn
Stuart McGinn was the Money Editor for Narcity Media and focused mainly on covering topics ranging from personal finance, to real estate, and careers. Stuart is from Ottawa and is now based in Toronto.