Three Essential Questions to Ask Yourself Before Buying a Home That Needs Major Renovations
On home design shows, buying a house that needs a full renovation—or is a complete teardown project—looks like an exciting adventure, where couples joke with each other, minor challenges are solved by tweaking a seemingly infinite budget, and everything from painted trim to bookshelf styling is finished before move-in. But in reality, taking on a major makeover is much more complicated. "Buying a teardown property or a gut reno isn't a decision to be taken lightly," says Rachel Stults of Realtor.com. "With unforeseen problems and delays, it could actually take years before you're able to live in your dream home. But if you're smart about the property you're investing in—and you have the patience to see the project through, warts and all—then you could very well end up with a dream home in a dream neighborhood that's worth triple what you paid for it." Ahead, questions to ask yourself to determine whether or not you're up for this challenge.
Is the home in the right location?
As with any real estate purchase, the location of the property you're looking at should be your first consideration, whether you want to live in the finished home or hope to sell it for a profit. "If you're planning to renovate or tear it down for yourself, you want to make sure that the location is really the place you want to be. This is going to be a long and emotional process, and if you aren't in love with it from beginning to end, that will make it more difficult," says Lindsay Tripp of Summit Sotheby's International Realty in Utah. "If you're planning to flip the property, a highly updated or renovated home in a great location will always drive a premium price. Make all of your efforts worth it by having the complete package to present to buyers."
You should also take a close look at the neighborhood, including the other homes in the area and the comparable recent sales, to make sure your renovations won't price you out of the locale. "The location and the context of location are key," says Jason Krochalis of Kienlen Lattmann Sotheby's International Realty in New Jersey. "You don't want to build something way bigger or different than the neighborhood it's in. Check the market: Does that total investment align with current values in the neighborhood?" You should also check the area's zoning and construction rules, suggests Stults, to make sure you can build the dream home you have in mind without running into permitting laws.
Do you have enough money—or can you get it?
Buying a home that's in bad shape might look like a great deal on paper, but the finances can get complicated. Unless you're paying cash, you'll need to qualify for specific type of loan that includes money for renovations—which may mean choosing from a smaller cache of lenders—and you'll need to prepare for costs you might not have expected, from asbestos testing to unforeseen structural issues. "Renovation loans can be tricky to qualify for," says Tripp. "Sometimes, especially in a hot market, good deals can be deceiving: On the surface it looks like something you can turn a profit on easily, but would you be over listing for the area? Are you confident in the scope of the project? Will there be any surprises once you start digging in?" Carefully evaluate the less-visible parts of the house—the foundation, beams, and joists; the HVAC and wiring systems; any existing water damage or mold; and the insulation. "Make sure you factor in all costs, such as labor, materials, permits, and bringing the house up to code—and expect delays that will be costly, too," says Stults. "You should make sure you have a robust budget for emergencies and unforeseen problems. If you don't have a big cushion in your budget to buy the house and cover any surprise costs, this probably isn't the project for you."
Can you handle the stress?
Careful editing makes television renovations look stressful but not too stressful, which is more than a little misleading. "It's a lot to live through and deal with," says Krochalis, who renovated seven homes while his wife was pregnant with their second child. "If you can't handle decisions, changes, or delays, this isn't for you. Someone who can work through the hiccups, hire—and fire, if needed—and keep calm during extended periods of stress is the best personality fit." And if the idea of going over budget or extending your timeline is unacceptable, then this may not be the right time in your life to take on a project like this. "A full reno can look shockingly simple, but that's the glory of TV," says Stults."Before you embark on such a huge project, assume that everything can—and will—go wrong, and then ask yourself how you'll deal with that stress."