Many homebuyers purchase fixer-uppers as a way to save money. However, when all is said and done, some find out that they weren’t exactly a bargain after all. While many older homes have good bones and only need cosmetic work, others have costly structural problems hidden under the surface that can blow your renovation budget. Want to avoid the latter? Here are some tips to help you spot a money pit before your sign on the dotted line!
5 ways to avoid a home renovation money pit
When buying a home, you always need to do your due diligence, but that goes a lot further when purchasing a fixer-upper. Here are 5 steps you can take to ensure a home is a good investment.
1) Look for signs of major issues
When you’re looking at homes, keep an eye out for signs of major issues that will be expensive to repair. For example, if you see large interior cracks, bulging walls, crumbling masonry, or sagging floors, the home may have structural problems which could cost thousands to fix.
Another issue you probably want to avoid is water damage/mold. If the drywall in the home looks stained or warped, leaks and mildew may be lurking underneath. Rotting, crumbling wood around doors and windows can also indicate moisture issues.
2) Hire a home inspector
To compete in this hot housing market, some buyers are waiving their right to a home inspection. But if you skip this important step on a fixer-upper, you may get stuck with a house that has costly problems you can’t afford to fix.
Home inspectors have advanced training and can catch issues you may have missed. They can also help you understand the scale of each problem and tell you what needs to be fixed now and what can wait.
Further, you should read any seller disclosure forms you receive carefully. They can clue you into issues like aging home systems that will need to be replaced and past water damage.
3) Get an estimate
In many states, home inspectors are unable to provide repair estimates due to local laws. So before your home inspection contingency ends, you should bring in a contractor to get a better idea of how much the repairs and improvements will cost.
Many home renovations go over the estimate, so it’s usually a good idea to add 10% or 20% to the quote you receive to account for unforeseen expenses. Then, you can decide if the home fits into your renovation budget or has more extensive problems than you can afford to take on.
4) Do the math
Once you know roughly how much the renovation will cost, it’s important to determine if the home is worth the investment before you move forward. To get a good return when you sell, it’s usually recommended that you limit your spending in each room to the value it contributes to the home.
For example, kitchens account for around 10% to 15% of a property’s overall value. So you should aim to spend no more than 15% of the home’s price on upgrading the kitchen. For a $150,000 house, this means that you should try to keep the kitchen remodel under $22,500. That way, you’re not investing more money into the home than you can expect to get back at resale.
If the estimate you received from the contractor is way over budget, moving forward with the renovation as planned may not make sense.
5) Be flexible
Even if you had your home inspected before purchasing it, surprises like leaky pipes and failing appliances might still come up. The key to avoiding debt if unexpected issues arise is to be flexible. If you have to make essential repairs you weren’t anticipating, you may have to cut back on other areas of your renovation, like cosmetic improvements. Being willing to change your plans can help you avoid going over your budget. And, it doesn’t mean that you will never make those additional upgrades. They may just be things that you do a little more down the road when your budget permits.
Finance your fixer-upper
Fixing up an older house can not only save you money but can allow you to create a home with the custom features you want. However, keep these tips in mind to ensure it makes financial sense!
Ready to finance that fixer-upper? We’ve got you covered. Reach out to the team of mortgage experts at OVM to help you understand your options and make an offer!
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