It seems so easy on the Property Brothers. They find a home in desperate need of renovation, bust out a few walls, put in new flooring and furniture and—voila!—that rundown old shack has become a modern gem, and a goldmine to boot.
That’s reality TV. But what about real life? Well…sometimes that rundown shack ends up costing more than it’s worth.
Transforming a fixer-upper from shambles to chalet takes know-how, financial planning and the help of professionals along the way. What should you consider before taking the plunge? The real estate website Houselogic offers these suggestions:
Always hire an inspector: As with any home purchase, you need to know if there are hidden problems that will break the bank. Don’t skip this step.
Get a structural engineer to inspect the home: If the home needs major structural work, hire a structural engineer to tell in writing exactly what work is required. Houselogic suggests avoiding purchasing a house that needs expensive structural work unless: you’re getting a “steep discount”; you’re confident you understand the extent of the problem and that it can be fixed; and “you have a binding written estimate for the repairs.” Keep all documentation for future buyers.
Decide what you can do yourself: Painting is easy; electrical work not so much. Assess your skills, as well as your available time and desire to do the renovations. Also consider if you will need to take time off work. If that’s not possible, says Houselogic, “will you be stressed out by living in a work zone for months while you complete projects on the weekends?”
Price renovation costs before you buy the house: Ask your contractor to walk through the prospective house and give you an estimate of what the renovations will cost. If you’re doing the work yourself, add up the cost of necessary supplies. In either situation, add on 10% to 20% for unexpected problems that arise.
Find out what permits cost: Learn if the work you’re planning requires a permit, and if so, how much it will cost. Then decide if you will get the permits yourself or the contractor will do so. If you choose the former, be aware that getting permits can involve time and aggravation — not to mention money.
Arrange financing: If you plan to acquire a home equity or home improvement loan, get pre-approved before you make an offer on the house so that you won’t face any surprises down the road. “Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings.”
Do the math: Subtract the renovation costs from the fair market value of the property if it were in good condition. Remember to factor in what value you put on your efforts. This will give you a ballpark amount to bid for the house.
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