Is a Fixer Upper a Good Idea for My Los Angeles Investment Property?

Is a Fixer Upper a Good Idea for My Los Angeles Investment Property?Choosing the right property for your property investment goals is key. One options many investors like is finding a property that needs some renovation and repair, often called a fixer upper. This can allow you to buy a home in Los Angeles for a lower purchase price, then renovate and resell or rent the property. If you're looking to invest in real estate in Los Angeles, here's what you need to know about choosing a fixer upper for your investment property. 

Financing and Budget

Many investors look to a fixer upper because they are seeking a more affordable investment property option. To make sure the fixer upper you buy is truly the lower cost option, you need to have a realistic renovation budget along with your financing for the purchase. 

Establish a realistic budget that accounts for the purchase price of the fixer-upper, renovation costs, carrying costs (such as mortgage payments, property taxes, and insurance), and a contingency fund for unexpected expenses. Factor in the cost of permits, labor, materials, and any professional services needed for renovations. Be disciplined about sticking to your budget to avoid overextending yourself financially.

It will also be exceeding helpful to you to talk to a few lenders about your financing options, including a mortgage for the house itself and funding for renovation. 

Understanding ROI

The ROI of the property can be much higher in a fixer upper than a turn-key property, dependent on a few crucial factors. Evaluate the renovation potential of the fixer-upper carefully. Look beyond cosmetic issues to identify structural problems, outdated systems, and layout deficiencies that can be improved or corrected. Consider hiring a professional inspector or contractor to assess the property's condition and provide expert advice on renovation options and costs.

Before purchasing a fixer-upper, calculate the potential return on investment (ROI) based on projected renovation costs, resale value, rental income, and market appreciation. Consider both short-term and long-term factors that may impact the property's value and cash flow. We can work together to assess the investment's viability.

Inspections and Permitting

One of the primary concerns with a fixer upper can be making sure all the renovations are done up to code. This starts with the home inspection before you buy the property. Review the inspection report for any red flags that might cause a significant delay or increase in expense, like:

  • Problems with plumbing or electrical
  • Foundation issues
  • Previous work done without permits or not up to code
  • Pest or mold damage

Ideally, you will invest in a fixer upper that is primarily in need of cosmetic work. Remember to make sure your renovations are done according to all local regulations. It's essential to familiarize yourself with Los Angeles's zoning regulations and permitting process before undertaking any renovation projects. Certain alterations may require permits from the city, and non-compliance can result in costly fines or delays. Work closely with local authorities and obtain the necessary permits to ensure that your renovation plans meet all legal requirements.

Is a fixer upper a good idea for an investment property?

Even with the extra considerations, there are some major benefits to be had by investing in a fixer upper:

  • Appreciation potential: Renovating a fixer-upper has the potential to increase the property's market value over time. By improving the condition, functionality, and aesthetics of the property, investors can capitalize on appreciation and potentially sell the property for a higher price than the purchase and renovation costs combined, or benefit from the equity that can be leveraged toward other goals. 
  • Customization: Fixer-uppers offer the opportunity to customize and personalize the property according to your preferences and investment goals. Investors can tailor the renovations to appeal to their target market, whether it's updating the kitchen and bathrooms, adding modern amenities, or optimizing the layout for maximum efficiency.
  • Reduced competition: Fixer-uppers often attract fewer buyers than move-in ready properties, which can result in less competition and more negotiating power for investors. With fewer competing offers, investors may have the opportunity to secure the property at a lower price or negotiate favorable terms with the seller.

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