Buy An Ugly House: This Is How You're Going to Compete in This Market

I’ve got a confession to make: I love ugly houses.

As a real estate agent, I want all of my clients to find their dream homes. But in the current market, their dream homes aren’t always attainable – unless you’re willing to put in a little (or a lot) of work.

There are so many buyers, and so few homes, especially homes that have instant curb and lifestyle appeal.

That’s why I give my clients some unconventional advice. Can’t get an offer accepted on a house you like? Buy an ugly house -- aka a fixer-upper -- and turn it into the best home on the block.

Are you up for the challenge?

Before I tell you why it’s a good idea to buy an ugly house, let me say this upfront: Renovating an ugly house is definitely not the easy route. And it’s not right for every homebuyer.

Buying a fixer-upper requires a great deal of time, effort, and money, and not everyone is willing or able to make that commitment.

Many people want a home that’s move-in ready on closing day. If you can make a winning offer on a property like that, there’s no doubt that it will be easier than taking the renovation option.

But first-time homebuyers are competing with seasoned homeowners who sold properties recently and can pay cash for their next house. It’s really tough for new buyers to go up against cash, especially in areas with high demand, such as Baltimore or Annapolis, which are two of the areas my team serves.

Looking at the less desirable properties is a way to get your foot in the door. But you’ve got to be up for the challenge, and you’ve got to have a sense of adventure.

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How to see the potential in an ugly house

I hate to say it, but a lot of homebuyers have unrealistic expectations of what house hunting will be like and the types of homes that should be available to them.

It’s not their fault, though. I blame all of those HGTV shows that made people think they’d look at a handful of houses and have their pick, and that every house would be spotless with all-new everything.

The reality is, we’re probably going to look at 30 houses, if there are even that many available And we’ll probably write five or six offers in the hopes of having one accepted.

I worked with a couple in 2021 that looked at 45 houses and wrote 10 offers before getting one accepted. That’s commonplace in this market.

If that sounds exhausting, I assure you that it is. That’s why I’m a fan of getting creative and seeing the potential in houses other buyers overlook.

Here’s how I approach it with my clients.

What are the core requirements?

First, we look at the core requirements for the home, which include things like:

• What is the square footage?
• How many bedrooms does it have?
• What school district is it in?
• What are the local amenities?
• Is there a homeowners association (HOA)?

An HOA may seem like an afterthought, but it can actually make or break a deal. The HOA fee gets factored into your monthly mortgage payment, and a high HOA cost can push your payment above the qualifying debt-to-income ratio (DTI)* for your loan program.

In Baltimore, some properties are also subject to ground rent, which is exactly what it sounds like: You own the house but not the land on which it sits. You owe ground rent in addition to your house payment. That’s another expense that gets factored into your DTI and can affect whether you qualify.

So those are the core requirements: Does the property meet your basic needs and is it affordable once all the relevant costs are accounted for?

Once we’ve determined that a house meets those minimum criteria, we can get to the fun part.

A note about financing a fixer-upper: Before I show my clients fixer-uppers, I ask what type of mortgage loan they’re using to buy the house. Some loan types, such as FHA and VA loans, have specific property standards the home needs to meet before the mortgage can close. We have to make sure the homebuyer will be able to buy the property before we schedule a showing and start envisioning the possibilities. If you plan to buy a fixer-upper, work with your real estate agent and lender to ensure you’re looking at properties that are likely to qualify based on the loan you’re using.

Can we turn this ugly house into the best home on the block?

Visuals are huge when you’re browsing homes online, which is why you see so many professional photos on listings. Sellers and their agents want to showcase the home at its best, and that works really well for houses that are new or have already been renovated.

Ugly houses, on the other hand, don’t perform so well online. And that’s where the opportunity is.

I love to scope out listings for hideous houses. I’m talking blurry, poorly shot photos someone took on their cell phone that show clutter everywhere, boxes piled in the corners, and old tile on the countertops.

Those are the homes everyone else is going to scroll past. I look at those listings and ask, "Can we go into one of the ugly houses and make it the best house on the block?"

Oftentimes, there’s a lot of potential there – even if buyers need a little help seeing it.

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But that’s where I come in. As an agent, I’ve seen how a little sweat equity and “reno” work can transform a house. My husband flips houses, and I often work with him on design decisions. So I can point out the ways in which a home can be improved, which are sometimes as simple as replacing light fixtures and repainting to brighter or more dynamic colors.

You’d be surprised at how much new countertops, brighter lighting, and fresh paint can do for a house. Flooring also makes a huge difference. Putting in new flooring can change the entire scope of the room, and it doesn’t have to be exorbitantly expensive.

Of course, you can also go for bigger picture changes, such as knocking out walls to create an open concept floor plan. It all depends on your budget and how much time you have to either find and coordinate with contractors or do the work yourself.

The bottom line is that there is limitless potential if you’re willing to buy an ugly house and make it beautiful.

Are you Chip or Joanna?

Once you tell me you’re game for a fixer-upper, I’m going to ask you this all-important question: Are you Chip or Joanna?

People laugh when I ask them which half of the “Fixer Upper” couple they identify with, but it’s a serious question. Are we putting in new faucets and arranging eucalyptus in a vase for a Joanna Gaines aesthetic? Or are we going full Chip and busting down walls?

Because believe me, there’s a difference. And you have to decide how deep you want to get into this.

The idea of knocking down walls and reinventing the interior of the house is exciting. But I’ve never heard of someone tearing into a wall and saying, ‘Oh this looks great!’ right off the bat. There’s always a complication and more work to do. Sure, it can look amazing when it’s all done. But do you really want to do a full renovation of the house? Or do you just want some new countertops and nicer fixtures?

There’s no right answer here. But you have to decide what you can afford, and what you have the time and patience for. If you want to move into the house as soon as possible and you just want it to have a more modern feel, there’s a lot we can do on a short timeline, even with a tight budget.

Are we putting in new faucets and arranging eucalyptus in a vase for a Joanna Gaines aesthetic? Or are we going full Chip and busting down walls?

If you want to turn the house inside out until it’s your dream home, we can do that, too. But it’s important to decide how far you want to take things before you start looking at houses, because your idea of a “fixer-upper” will determine which properties we see.

If you are considering doing the work yourself, I offer a word of caution. Renovating a house will take longer than you think, especially if you work full-time and are new to things like sanding and refinishing floors or doing installations. 

That doesn’t mean you can’t do it, only that you should set realistic expectations before you choose your home. A house might seem like a steal, but if it has a faulty septic system or there’s no indoor plumbing, your repair costs and timeline are going to increase quickly.

Ultimately, the decision is yours. My job – or your agent’s job – is to help you make the best decision based on your finances, goals, and the houses available in your area.

But know that buying a fixer-upper can be a way to find a home that’s in your budget and that may be easier to buy than the prettier home down the street that everyone is making an offer on.

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How do you buy a fixer-upper?

You have a few options for buying a fixer-upper.**

You can use a renovation loan, which allows you to purchase the home and pay for renovations with a single loan. There are a number of low down payment renovation loan options, including:

• 3.5% down FHA 203k loan
• 0% down^† VA renovation loans
• 0% down USDA^‡
• 3% down conventional renovation loans

However, these programs require you to have contractors lined up and submit formal bids before the loan can be approved. That means you have to know what you want to do with the house – which is actually pretty tough if you’ve only seen the home in person once or twice.

Plus, with the sky-high demand for contractors right now, it can be difficult to lock down someone to do the work in the timeframe your loan program requires.

That’s why I often suggest that buyers consider their renovation payment options carefully after they’ve bought the home. This gives you a chance to get a feel for the house and really think about what you want to do. And, you’re not under pressure from your lender to have the renovations done on a particular timeline.

You can use a low down payment loan program to buy an ugly home with less money upfront, and then use the cash to fund the work as you tackle each project.

Of course, this plan works best for cosmetic fixes. Some issues make a house non-lendable. A renovation loan allows a lender to close the loan based on future repairs.

Find the beauty

They say beauty is in the eye of the beholder, and that’s true with houses, too. Sure, a house may seem ugly at first glance. But something happens once it becomes yours.

You’re uniquely invested in the property, and you start to see its potential. And as you add your own decorative touches and renovate key areas, that ugly house turns into a beauty that just may be the envy of everyone on your street.

*Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income. **Information on loan programs was added by Fairway Independent Mortgage Corporation. ^†A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. ^‡USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits.