If you like do-it-yourself projects and don’t mind waiting a few weeks to unpack into your new home, a “fixer-upper” might be at the top of your shopping list. In addition to a typically lower price tag, this type of home gives homeowners the opportunity to have a creative hand in every step of the dramatic makeover. However, while there are some pretty great benefits to choosing a fixer-upper, there could also be some serious problems down the road. As insurance experts, we’ll evaluate the advantages and the risks of investing in an older house that needs more work than a newer, ready-to-move-in home.
The biggest chunk of your insurance policy is of course your dwelling coverage. This number represents the amount it would take to rebuild your home entirely if you experienced a total loss. Obviously, a smaller, older “fixer-upper” is going to have a lower value than a new home, so the cost of dwelling coverage and the overall home insurance premium would likely be significantly lower. However, an older home also could contain some features that will drive the cost of coverage up, so read on.
If you choose a house based on its potential rather than current charm, you probably have more than one or two weekend do-it-yourself projects in mind. Whether you’re planning to rip up some carpet around the house or completely tear out the kitchen, keep in mind that your updates affect more than just your living arrangements. They also affect the value of your house – and the amount it would take to rebuild it in case of a covered disaster.
If you’re still paying the dirt-cheap premium you got before you started renovating, you may find yourself severely underinsured. Just imagine if an accident or disaster suddenly wipes out your house before you’ve updated your coverage all of your hard work and financial investment could be lost.
The bottom line: Weekend projects are a great way to be creative and increase the value of your home. But you have to update your home insurance policy when you update your house. Otherwise, you could leave other important investments in the dust.
If you’re looking to avoid a subdivision full of mass-produced, cookie-cutter mini-mansions, you may be drawn in by the appeal of an older unique home. Plus, you’ll have total control over the finished product to make sure your style and personality come through.
However, if you do choose an older house, be prepared to spend some time and money on updating some of the less glamorous features, too. For example, if your electrical system and plumbing systems are out of date, you could end up spending thousands on bringing them up to code or suffer major financial losses due to malfunctions. Additionally, if your roof hasn’t been touched in the last decade, you could be in for a wet surprise the first time a storm blows through. Since these features can often end up causing the most damage if left unattended, they should either be at the top of your to-do list, or be considered deal breakers.
Additionally, they will affect the cost of home insurance – maybe even undoing some of the premium relief you could expect from buying a lower value home. Failed electrical, plumbing and, HVAC systems, along with older roofs, can trigger major claims against your home insurance policy, so you'll pay more for coverage until you update these features.
There’s no right or wrong answer when it comes to whether or not a “fixer-upper” is right for you. If you’ve weighed all of the options, considered all the risks and are well-prepared with a detailed budget, you could get a house at a bargain and turn it into your dream home.
This article was written by Carrie Van Brunt-Wiley, contributor to the HomeInsurance.com Blog. The HomeownersInsurance.com blog serves as a resource center for insurance consumers and homebuyers across the country.