You may find a great opportunity in a house in need of renovations as long as you know what you are getting into. If you love old houses and also love to work on it, then you can buy a fixer-upper. You can snag a rundown place in a safe neighborhood for below market place and invest some time and money on renovating it and make it like a new house that has more worth than what you paid for. Before you go jump to a decision, make sure that you have a realistic idea of what you are getting into.
Here are some restoration tips that will help you make the right decisions:
Make Careful Calculations:
Before you buy a fixer-upper, you should carefully calculate the costs that are required to renovate the property based on a thorough assessment of the condition of the house. Be very careful with this calculation, and it should include everything like labor and materials that are required. After this, subtract this from home’s market value after renovation. Then subtract minimum another 5 to 10 percent for extras that you decide to add for any unforeseen problems that may need attention. What will be left should be your offer.
If your target home needs significant structural improvements, be sure you have the team to make the correct repairs. You will have to apply for permits and be subject to city inspections. Many times, unforeseen items pop up that require thousands of dollars to bring up to current code. During renovations is the time these items come to light. Many real estate experts recommend avoiding the major improvements unless you have the workforce and experience to tackle the project. Many major repairs like plumbing and electrical system hardly ever raise the value of the house but are required to be installed to code.
Pick Projects Wisely:
The ideal fixer uppers require improvements like floor refinishing, paint touch-ups, drywall repairs, and cost less as compared to what they return in the market value. You can also look for lighting fixtures, window shutters, doors, and much more as they are too lucrative improvements.
When you need to make significant renovations such as create a family room or third bedroom to keep consistent with the neighborhood, these projects cost much as compared to the price they return in market value. Despite the higher costs, these type of changes will make the property more marketable if you decide to resell it.
Many times it becomes possible to fold the cosmetic improvements into a structural repair that can increase the value of a fixer-upper. If you are replacing the roof, you can add a skylight or add a bay window. Extensive scale renovations can take many months to complete. In this period, if the home prices stay flat or fall, then it is possible to come out at the end with a house that not nearly worth investing money for. Time is money when renovating properties. Holding costs accumulate each day of renovation. Holding a property longer than expected can add thousands of dollars to the budget.
Have an Exit Strategy:
Buying an investment property to resell can return a nice profit, but there is another option. Making the decision to find a renter and keep the property can provide long-term advantages. Ideally, you would want to get a cash-out mortgage on the property to reclaim your investment. If you made the purchase correctly, the rent would cover the loan amount, property taxes, and required insurance on the property. Not only will you have your investment money back to reinvest, but you can also start collecting a small profit each month. Over time, as the mortgage gets paid down, you will gain equity in the home. This can be used as loan collateral down the road for even more investments. Just make sure you have addressed all the essential items in the repairs, so nothing needs to be replaced for several years.