Bathroom remodel © Digital Vision, Photolibrary

Fixer-upper (noun). A home you purchase at a reasonable price, but one that requires an unreasonable amount of money in repairs and renovations.

OK, so I made up that definition, and it's not always true. Buying fixer-uppers can get you more house than you would normally be able to afford at a reasonable price. They can be pleasantly inexpensive. But they can also be money pits, masquerading behind a façade of charming woodwork and arched doorways.

As tempting as the purchase price can be for houses that need a little TLC, you must assess whether a fixer-upper is right for you. To do that, you need an appraisal. And I'm not just talking about the house.

An honest appraisal of yourself

I believe even a carefully selected fixer-upper is really a bargain only if you can do the labor yourself. Even though my husband and I come from a long line of blue-collar workers, we have a lot to learn. Still, we have people to ask. Between our two families, we have two HVAC technicians, a plumber, an electrician, two ex-carpenters, a concrete worker and two nurses (just in case the renovations don't go smoothly).

It's more than knowing how to do repairs, though. Even if you can do most of the labor yourself, do you want to? For instance, my husband loves doing electrical work but doesn't enjoy carpentry. That means our windows remained untrimmed for a long time, but I'm not surprised that we have a great fuse box.

Then there's living in the middle of endless projects. Since we renovate after our day jobs, sometimes we live in the middle of projects for a long time. When we refinished our wood floors on the main level, I came close to going crazy. There was dust everywhere, for too long.

And do you have the necessary tools? Even though we have the main tools like hammers and drills, we also share the really expensive or less commonly used tools among family members. Tools are expensive. You may want to borrow or rent tools that you won't use often.

The other honest appraisal

You also need to know as much as possible about the house. A home appraisal and a thorough home inspection should tell you what you need to know. What's it worth? If it's an old house (and most fixer-uppers are), how is the foundation? How old are the plumbing and wiring? Is there evidence of mold or water damage? Does it need a new roof?

Once you know what the house needs, you need to ask whether you can afford to address these things. Unless the house is dirt cheap, or you have access to inexpensive materials, you may need to find another house. Issues like mold or a foundation in disrepair are expensive to fix, so you may or may not get your money back in home equity.

A tale of two houses

We've owned two homes. And while both needed a lot of work, they were completely different.

So what was the difference? The first house sat on the edge of a town with notoriously low prices for real estate. It was a mediocre house in a mediocre neighborhood. Because of that, we needed to buy the house at a price lower than the surrounding houses. Which brings me to rule No. 1.

Rule No. 1: Buy a fixer-upper at a cost (way) below the rest of the houses in a good neighborhood. By following this rule, your improvements will bring your house up to (or slightly exceed) the value of the surrounding properties. You won't recoup your costs if your renovations result in "too much house" for the neighborhood.

Click here to become a fan of MSN Money on Facebook

More from Get Rich Slowly:

Rule No. 2: Find a fixer-upper with quality construction. That first house was cheap, costing less than our combined annual income at the time. But everything about it was cheap, including the materials used in its construction. And that led to a rodent infestation, among other things. (I think our record was catching 14 mice in a 24-hour period.)

On the other hand, our second house has "good bones." Maybe it needs lots of work, but at least the extra work will be built on a good foundation. Ah, but "lots of work" means mostly major, expensive projects.

Rule No. 3: Pick a fixer-upper in need of cosmetic upgrades instead of major, expensive projects. Well, of course! We didn't put lots of money into our first house. Instead of fixing the foundation or updating the kitchen, we did inexpensive things like painting, pulling out old, overgrown bushes and replacing the carpet.

And the new house? In the five years since we moved in, here are the projects we've completed: refinished all the wood floors (all 1,800 square feet of them), replaced the roof and some windows, rewired the house, renovated a bathroom, fixed the barn roof, and replaced the leaking toilets and one of the rotten bathroom floors.

That doesn't even include the projects we had to hire out, like replacing part of the barn foundation or putting in a new septic system. 

It also doesn't include the projects yet to come. Despite the copious amounts of cash we've poured into this place, it still looks like a fixer-upper on the outside. We're used to the squirrel-gnawed siding and the peeling paint, but we recently got a glimpse of how it looks to others.

This summer, we hosted a shrimp boil on the front lawn with lots of people, including a couple of dozen kids. As I walked around the tables handing out cocktail sauce, one 6-year-old said, "Hey, who lives here?"

"I do," I replied.

"Well, you need to paint this house!"

No, buddy, what we really need is new siding.

Counting the siding, new windows, and a few other projects, I estimate that we have an additional $25,000 of updates to go, before we start the bathroom and kitchen renovations . . . and that doesn't count the $30,000 we've already spent. According to a recent appraisal, the house is worth less now than when we bought it.

Ouch. Next time I'll be following my own advice and applying this formula: Price of house plus cost of repairs equals the average home price in the neighborhood.

So before you fall in love with a fixer-upper, ask yourself if this is a decision you can live with. And in.

More from Get Rich Slowly: