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Can you Afford to Buy a Fixer-Upper Home?

So you're thinking of buying a fixer-upper? Maybe you're a do-it-yourselfer, or you just love this home so much that you don't mind lavishing extra TLC on it in the years to come. Or perhaps you're enthralled with home renovation television programs where every home has a camera-ready happy ending.

But there is a reason movie plot lines have been based on the darker idea that rehabilitating a home can result in disaster. Sometimes fixer-uppers turn out to be dismal downers. So if you're weighing the pros and cons of purchasing one, here are some thoughts to put in your mental toolbox.

Some projects are fun; others aren't. If you're going to lay down $10,000 to turn an outdated kitchen into a modern marvel that will be the envy of the neighborhood, that's fun. But if you need to spend $10,000 on a center beam in the foundation of the house that no one will see or care about, the joy of fixing up your home might start to fade.

[Read: Which Home Remodeling Projects Are Worth the Money? ]

And future buyers may not be impressed, either.

That was the scenario Christopher Rither found himself in several years ago when he was working in due diligence services in real estate, including inspecting residential homes. "I bought an old plantation home in a great location in Hawaii and decided to fix it up, live in it for a few years, and sell it," says Rither, who now teaches conversational English at Myongji University in South Korea and runs a lifestyle website. "I thought restoring the entire house would make it a cinch to sell."

It didn't. Rither moved from Hawaii in 2010 and just sold the home a few months ago. As he found, "People really only care about what they can see. Nearly all buyers didn't seem impressed that I spent well over $25,000 ripping out and replacing all the plumbing, electrical lines and fixtures. What eventually sold the house was the clean exterior and the appearance of the interior. This could have still been achieved without new wiring and plumbing. A few upgrades would have been just fine."

That isn't to say you shouldn't be concerned about fixing the wiring, plumbing or that center beam, of course. If your home has major structural or electrical problems, a home inspector will advise a future buyer to stay away. But think strategically if you're considering restoring the master bathroom versus repairing the roof and gutters.

Consider the neighborhood. Kim Blackham, a licensed marriage and family therapist who lives in Tampa, Florida, purchased a small home in Cincinnati in 2003 and sold it in 2007. "My husband was extremely handy, and we had moved from out West, where there was a strong housing market, so we thought we would finish the basement, update the whole home and flip it."

But there was one problem. "What we didn't realize was that we were building ourselves out of the neighborhood. The home was very nice when we were finished, but it was now the nicest home on the street," Blackham says.

What's so bad about that? If you have the money to buy an upscale home, you probably want an upscale neighborhood to match. The Blackhams had to reduce their asking price by 20 percent, and the real estate agent said that even then, the price was still a long shot.

The house sold several months later for $19,000 more than the Blackhams paid for it, but considering they spent $25,000 on the renovations, they didn't exactly come out ahead.

"If we had to do it over again, we would have bought one of the least-expensive homes in a nicer neighborhood and tried to raise it to fit the standards of the other houses it was surrounded by," Blackham says.

[Read: When House Hunting, How to Assess a Neighborhood .]

Do your homework. You probably think you have done your homework, but have you really? Jason Sherman, who owns a communications and marketing firm in Chicago, has bought eight fixer-uppers over the years and rented out most of them.

He advises that if you're going to buy one, bring in a contractor for a walk-through beforehand. "But you should also do your homework so you know what materials cost and how much time a project takes, and so you know if what your contractor is telling you is fair," Sherman says.

Doing that will also help you when negotiating for a sale, Sherman says, assuming you have some "immediate concerns."

For instance, if you know you're going to have to replace the roof within a year or two, you should factor that into the asking price, Sherman says. But if in the roof is fine for another five or 10 years, you won't have much luck. "You are buying a used item," Sherman says.

In other words, some wear and tear on a house is expected. But if you're buying a home in which the furnace or hot water heater will need replacing immediately or soon, that's fair game for negotiating, Sherman says.

Know that anything can go wrong. Problems can crop up with a new house, too, but it's still worth remembering in case you're risk-averse. When you're buying a home that needs fixing, whether immediately or in the years to come, you could find yourself in a fix -- no matter what you do.

"We did everything right," says Laura Hedgecock, a Detroit resident and author of "Memories of Me: A Complete Guide to Telling and Sharing the Stories of Your Life." She has a particularly unpleasant memory regarding the additions she and her husband put on the house they bought in 1993. The home was built in 1955, so they knew from the beginning that there would be add-ons in its future.

She says that in 2005, she and her husband "checked the builder's references, checked him out with the Better Business Bureau and looked at his projects. We went over the contract with a fine-tooth comb, kept all the sworn statements and refused to write checks without releases."

That helped, but when their renovations -- a bath and walk-in closet off the bedroom and a kitchen addition -- were 90 percent finished, the Hedgecocks were thrown a curve ball.

[See: 10 Saving Strategies That Can Backfire .]

"Our builder confessed that he was out of money, had lied on the sworn statements, and that the bricks, windows, drywall, electrical, plumbing, carpentry and tiling hadn't really been paid for," Hedgecock says. Dealing with the stress, she adds, "literally made me sick."

Not to mention poorer. Hedgecock estimates she and her husband spent $10,000 on lawyer fees and new subcontractors.

When the dust cleared, Hedgecock was happy with the renovations to her home. She still is. But that's not to say every fixer-upper is the worth the financial headaches and heartaches. "If we had known how stressful construction combined with being defrauded would be," Hedgecock says, "we'd probably have moved instead."

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