So you’re a first time home buyer. Or maybe you’re upgrading. Either way, many times the best deal is in finding the elusive fixer upper house. You know, the scary house at the end of a block of beautiful homes. Something with charm and detail, but has been neglected for years. As you prepare to take on this exciting endeavor, here are some things to keep in mind.
Put On Your Developer Hat and Calculate All Costs
There’s a lot more to a fixer upper than just the finding the right house in the right neighborhood. In addition to your home buying costs you’ll need to account for all the planned remodeling. Remodeling costs include designer fees, builder fees, materials costs, building permit fees, historic zoning fees, and most importantly a built-in 10%-20% contingency above what you think it will cost for unforeseen expenses. This is especially true for remodeling projects. Once you open up those walls, you never know what you’re going to find. The last owner could be your worst nightmare, but you won’t know that until you see the guts of the house. Realize also that there’s always going to be a process of give and take. Even the most successful developers have to draw the line somewhere.
Formulate A Budget
Pretty straightforward. Figure out how much you can spend and then sign in blood that you won’t cross that line. We don’t want you waking up with a massive fixer upper hangover due to a boat load of overspending. Also, make sure to vet your total costs including the house purchase against the comps in your neighborhood. Your realtor should be able to help you with this. We don’t want you pricing yourself out of the neighborhood. Those costs often times won’t be recovered when you go to sell it.
Finance It or Pay Cash?
To get a mortgage on the home itself is one thing, but definitely pay cash for the renovations if you can. There are different mortgage options where you could refinance a mortgage and construction loan into one, but it can be a hassle and a headache. When you take out a construction loan for renovations the lender has a say in how much you can spend, who to hire for the work (such as a designer or builder), and has lengthy checkpoints that can delay progress. If you are like me, time is always a consideration. A great builder can give you an estimated timeline of when the project will finish if you can pay on time and with cash. When the money comes from a lender, it’s much harder to estimate completion dates because it’s subject to a lot of frustrating delays.
Check Your Emotions At The Door
It’s easy to get caught up in the hunt for a great piece of property. Think about it like this. If someone were to appoint you the responsibility of flipping a house for them with their money, you would approach it with a much clearer business-savvy mindset than you would if it were your house and your money. If you can remove yourself from the equation and divorce your emotions from the project, you are on the right track. You’ll make wiser decisions and not buy a property based on your feelings or emotional ties. You’ll also keep your renovation budget much more in check.