If you want to buy a starter home, the listing price is just the start of the financial investment, depending on the needed repairs.
For many buyers, starter homes are a good way to enter the housing market.
However, a good “deal” can also come with a dangerous financial trap: skyrocketing renovation and repair costs.
“I've watched more than a few first-time buyers purchase older homes at an attractive price, only to learn they didn't notice the necessary years of deferred plumbing, sewer, or septic system maintenance that could cost them a fortune,” says Michael Hambrick, owner and operations lead at Rooter Express SC in Anderson, SC.
Before you pull the trigger on a bargain starter home, do your due diligence.
The last thing you want is to save on the purchase price only to find that it will cost you thousands—or even tens of thousands— to make the property livable.
(Realtor.com) Common hidden expenses
There are several common hidden expenses that can instantly blow your postclosing budget on a starter home. These are often the result of:
Stucco issues
"Once stucco is removed from a home, we often see deteriorated sheathing, rotted framing, wet insulation, mold, or improperly installed flashing," says Nicholas Riley, owner of Driftwood Builders Roofing in Austin, TX.
And unfortunately, a visible crack can be minor compared with the hidden damage typically found.
Sewer line problems
Standard home inspections skip sewer scopes, which insert a tiny camera into sewer lines to look for damage.
"You might not notice the pipe running from the house to the street during a walk-through. However, it might be actively failing underground," explains Keith Ostendorf, project developer at Next Stage Design + Build in San Jose, CA.
According to Ostendorf, this is a common problem in older San Francisco Bay Area homes with original Orangeburg or clay pipe that's either cracked, collapsed, or loaded with tree roots that have been there for decades.
Failed flashing
Failed flashing, which is the protective barrier around your home that helps prevent water intrusion, can allow water to travel behind siding, stucco, or masonry.
"This is a sneaky issue because there's usually never obvious stain inside the home," Riley says.
Over time, trapped moisture can damage the framing and insulation of the home, leading to expensive, surprise repairs.
An aging roof
Riley works with many home inspectors who often find that roofs need to be replaced on these types of properties.
“The seller just wants to spend as little as possible, so they dish out $1,200 for the bare minimum repairs instead of $20,000 for the full roof replacement. Once the buyer takes over the house it's only a matter of time before they have to replace the roof,” explains Riley.
Outdated siding
Before a home hits the market, a seller can just paint over the older siding to make it look better. Unfortunately, the fresh, painted look doesn’t usually last long.
“This often leaves new buyers who think they 'found a deal' having to replace the siding on their home, which is very expensive,” says Riley.
According to Angi, the average siding replacement cost is around $11,585, with most projects in the $5,561 to $17,719 range.
Water intrusion
Before a starter house hits the market, many water intrusion issues are temporarily fixed with a bare-minimum repair that gets the house sold.
However, the intrusion often leads to far larger and more expensive problems down the road.
Angi states that water damage restoration ranges from $450 to $16,000, depending on the severity of the issue.
Tips to spot these red flags
When touring a starter home, look past the aesthetic issues as these are easier and cheaper to fix.
“Instead, direct your focus to poor water pressure, slow draining sinks, and stains under sinks from leaks,” says Hambrick.
Riley also recommends looking for new paint upgrades as they can often disguise water stains and intrusion.
Pay attention to discoloration on ceilings and walls, bubbling paint, soft trim, musty odors, mismatched roof shingles, excess roof sealant, sagging rooflines, and clogged gutters.
“Fresh paint on one ceiling spot, a rug placed in an odd location, or boxes stacked against one basement wall can all be clues of a bigger coverup,” explains Riley.
Don’t forget to smell the house.
“A candle burning in one room or a dehumidifier running can oftentimes be warning signs the seller is hiding mold or some type of rotting,” Riley adds.
Ideally, you’d hire a professional home inspector who can thoroughly inspect the property and point out hidden damages that may be invisible at first glance.
How to budget for deferred maintenance
Before you submit an offer on a bargain starter home, do some math to figure out how much deferred maintenance might cost you.
First, determine the ages of the property’s main components: the roof, siding, HVAC system, water heater, windows, plumbing, and electrical panels. Many of them should have data tags that are easily accessible and state the age.
Then figure out the average life span of each item.
“For example, if there’s an asphalt shingle roof, the life expectancy is about 20 years,” explains Riley.
Then estimate how many years of useful life each component has left and divide the expected replacement cost by those remaining years.
“For example if a roof is 15 years old, has an expected life span of 20 years and would cost $20,000 to replace, I would treat it as a $4,000-per-year future expense over the next five years,” Riley says.
Lastly, Riley recommends adding a 10% margin for additional expenses to the purchase price if the home is less than 15 years and 20% if it’s older than 15 years.
Ultimately, your goal should be to budget like a home remodeler—not a homebuyer who is solely focused on the purchase price.