Pros and cons involved in buying a home that requires renovations
Pros and cons involved in buying a home
When you’re in the market for a new home, one the first decisions you have to make are what kind of home you’re looking for and what you can afford. If there’s a mismatch between your price point and your dream property, the prospect of buying “under market,” by looking at places that need work or renovations, can be very tempting. Even if you are lucky enough that price is no object when house hunting, the romance of older construction, the popularity of shows and magazines about remodeling and redesign, or simply the prospect of a challenging new project might lead you to consider the possibility of buying a fixer-upper. Certainly the ability to tailor a house,condominium, or apartment to your specific tastes and dreams can be a powerful lure: wouldn’t it be nice to be able to combine a modern open floor plan with period-style fixtures, to build a kitchen that will perfectly accommodate your love of baking, or to turn an entire floor of an old Victorian into a master suite?
Before you decide, though, it’s important to consider both the pros and cons of buying a home that needs work. Both the financial and emotional investments should be considered no matter why you’re considering the prospect, since in the end our homes are important to us for both emotive and monetary reasons. Moreover, it’s helpful to think of finance and feelings separately; even if in the end one side matters more, you are more likely to be satisfied with your decision if you are clear about how you reached it.
On the financial side, the pros and cons are fairly well known. Buying a fixer can certainly save money—if you know what you’re doing. Since it stands to reason that anyone selling a property wants to make a profit on it, you can generally assume that attractive features on an existing property are being priced above what it cost to build them in the first place, and since most buyers make decisions primarily based on what they can see, it’s also generally true that a property with superficial problems is going to be harder to sell and therefore less expensive than a similar property with greater curb appeal.
If you have enough experience with real estate that you can look past appearances and assess a property objectively, you may safely be able to properly value the difference between a potential home that needs mostly cosmetic improvements and one where attractive staging and upgrades are possibly inflating the price. There are also tax considerations: since sales and property taxes are based on selling price, buying an undervalued property can often have ongoing benefits. On the other hand, permitting, subcontractors, and possibly lawyers’ fees (if you are considering major changes that may affect your neighbors) can really add up.
Even real estate professionals with experience in these matters, though, know to call in inspectors to look beneath the surface. If a home needs major (or even minor) structural repairs, you should be cautious. If you love the house and plan on staying in it for a long time, then redoing the electricity or plumbing might make sense, but most of the time the expense of fixes that don’t “show” won’t make a major difference when it comes time to sell. If you end up selling before you’d planned to, you may find yourself losing money, which erases the main “pro” of buying a fixer.
In terms of assessing the actual costs of a fixer, remember that they are higher than the selling price—which is why fixers tend to be priced under market. After all, the work that needs doing will cost money. So be sure that you hire not only an inspector but a contractor to do a walk through with you and help make sure that you understand the possible range of costs involved in the renovations you intend to make. Even if you intend to do much of the work yourself, there are undoubtedly going to be tasks that are better handled by professionals, and it’s always preferable to end up spending less than you’d budgeted than to plan on a budget diy remodel only to find out that you lack the time and skill. Make sure you have a sense of what the range of materials involved will cost, as well: if you fall in love with high-end granite countertops (or want to invest in trendy upgrades for the purpose of flipping the property after you’ve improved it), you need to know that you can live with and afford the decisions you make.
When it comes to the emotional side of decisions about home buying, things get a lot more variable. Whether you are thinking of doing much of the work yourself or of contracting it out, renovation decisions involve questions of taste and status that are, by definition, highly personal—and therefore can be very volatile. You should count on having at least a couple of unexpected hitches along the way, and of course work on a property is time-consuming and inconvenient: how do you and your family, if you have one, handle conflicts, unexpected disappointments, and arguments? If you know that stress creates drama, then you will almost certainly be better off walking away from a purchase that is inevitably going to make more demands on you than a move-in ready home.
You’ll also want to consider how stable you are. If you are buying a fixer solely to flip it, the situation a few years down the line may seem not to matter much; but investing time and energy into a property can make you grow attached to it, and many people have stories of having fallen in love with a home they didn’t intend to keep. Of course, if you decide to keep a property you’ve come to love, that’s a winning outcome, but it may also be a more expensive one than you had originally planned.
On the other hand, if you are looking to fix up a place with an eye to long-term ownership, the inconveniences of renovating up front will be less important than the gains over time. This is probably the strongest draw of buying a place that needs work: the fantasy of coaxing a phoenix out of the ashes, building a dream house because you saw the potential in a raw property. If this is your goal, you need to have a strong sense of how likely it is that you are going to want to remain in that neighborhood and how stable your financial and personal situation is for the long term. If your job, marital status, or location changes within a few years, you may find yourself with a property that you can’t keep or renovations that are only half completed.
Finally, don’t forget to consider the impact of technology. Newer homes are better insulated, have newer, more energy-efficient windows, offer updated wiring and outlets for today’s electronics, better space for appliances and entertainment systems, and have more storage than older construction. While older buildings can be brought up to date, changes like these seldom improve the sale value of a property, precisely because most people don’t consider them until after moving in. If you plan on staying in your home for a long time, you will definitely want these updates done for reasons of safety, conservation, and convenience—so be sure that you do consider them before signing that purchase agreement.