How to Buy a Home to Renovate
Filed under: Home Buying, Real Estate Investing
We’ve all heard of people who buy a wreck of a house in a great neighborhood, fix it up themselves while living in it, and then sell it for many times what they paid for it. This sounds possible for people who know enough about construction to judge whether a wreck can be saved economically, and whether its foundation, supporting walls and roof beams are sound. These people should also be able to accurately estimate the costs of supplies and labor. To keep costs under control, their plans for the house must be realistic. If they try to transform a wreck into a dream house, as many people attempt, their costs will spiral. More than once I’ve heard it said that it could be cheaper to build from bare ground than renovate an existing house.
“Wisely, and slow. They stumble that run fast.”
—William Shakespeare
What you set out to do with a house is a matter of common sense. However, common sense is easier to have about other people’s property than your own. Most of us have a blind spot when it comes to fixing up our own property. We simply don’t foresee how much work is involved, how long it will take, how much it will cost, and perhaps most dangerous of all, how we feel free to change our plans continually.
You probably know at least one couple whose home is a permanent construction site. They didn’t know what they were getting into. Now they work weekends and several nights a week after their daytime jobs, when they have the energy and are speaking to one another. Progress is slow. At times they run out of money for supplies, which cost far more than they had planned for, so work stops temporarily. Add in the inevitable mistakes and revised plans, and two years of nonstop construction just fly by. They can hardly remember what it felt like not to be covered in fine dust.
Don’t do this to yourself! One way to avoid the trap of being self-deceptive or self-indulgent is to imagine that you are working for someone else when planning and making estimates. For example, would you promise an employer that you could complete a certain thing in a certain timeframe at a certain cost? If not, don’t make that same promise to yourself. You would make sure to get your employer’s plans and budget in writing—and stick to them. Do the same for yourself. If your employer’s plans became more grandiose as work proceeded, you would warn about extra costs. However, it can grow difficult when you and your partner’s plans get more ambitious, even when you have the original ones in writing. The advice of some contractors is to multiply all time and cost estimates by two.
Keep in mind that renovations for your own recreational interests may not add value to your house. For example, a photographer may look at a darkroom with special water supplies as an added value, but few others will. Built-in, large, saltwater fish tanks are another doubtful improvement. If you find the right buyer, the money was well spent. Many potential buyers, however, will see only the cost of their removal.
Finally, you have to balance whether the money, time and effort you plan to invest in renovation will be reflected in an increase in house price. It can be dispiriting to do extensive renovations and see a neighbor’s neglected property appreciate by the same amount as yours, simply because market supply, or neighborhood desirability, is the factor controlling house prices.
Cosmetic, light renovation is almost always worth doing. A fresh coat of paint inside and outside works wonders for a house. If you have a yard, a little work can create a great first impression. Mow, weed, and clip your landscaping. If your yard is mostly concrete, a few plants in large pots or tubs can dispel the bareness, so long as you remember to water them. For additional, practical and financial details on renovation, see my book Bubble Proof. You need to keep in mind also your answers to the following questions:
- By how much will your renovations increase the value of your house?
- Can you realistically estimate renovation costs and time?
- How much work can you do yourself and how much will require hired labor?
- Have you made arrangements to cover all the costs involved?
- Do you know a construction expert whose opinion you can trust?
