August 9, 2018
In theory, purchasing a renovator’s delight sounds like a great way to enter the property market. You buy a home that’s budget-friendly and is ripe with potential. It’s in a good location. But, it needs some tender loving care.
Then, you use the money you save on the cheap purchase price to pay for renovations.
Voila – your fixer-upper has become a beautifully updated property in a hot area. You can easily find buyers or tenants who will pay top dollar for the fresh look, new appliances, and the great location. Or, you get your dream home, designed with everything you ever wanted in a house, and you have a mortgage you can afford.
Wouldn’t it be great if this is what happened when you bought a house to renovate? You’d even get to put your own creativity and personality into the design, making your renovator’s delight feel even more like your own.
In reality, however, renovations rarely go as planned. And, those diamonds in the rough – the ones only valued for the land they’re sitting on – they will usually require a massive and very expensive overhaul.
It’s difficult to identify all the problems that need to be addressed during the pre-purchase inspection. Which means, when buying a house to renovate, either to live in or as an investment, you have to be ready for the unexpected.
Will a renovator’s delight be right for you – or a disaster? First, know what you want out of the property to help guide your decisions. Then, weigh the pros and cons and get your budget ready for absolutely anything.
Step one is to look at what you are buying a renovator’s delight for. Make sure you are clear on both your short and long-term goals to help determine your budget, what you want out of the location, and what you want out of the renovation.
Dream home – if you are buying a fixer upper to move your family into and live indefinitely, location is a priority. Is it nearby good schools? Are you nearby parks, shops, restaurants, and activities that your family are interested in? You’ll also want to ensure you have enough money to cover the essentials for your renovation so you and your family will enjoy the home, and the priorities on your wish list to make sure you love the home. After all, if you can’t afford the renovations you want to do, this may not be your dream home in the first place.
Temporary home – Some buyers like the idea of purchasing a home, renovating, and then selling after a couple of years, ideally after the home has increased in value and they have more home equity to use to purchase their next property. In this case, market research is key. Are there council approved development plans that will impact the area’s value? Do home prices in this area historically remain stable when the real estate market slows?
Property to flip – If you are going to sell the home right after purchase, you can focus your renovation budget on making sure the property is structurally sound and looks attractive. Once it’s ready for sale and has that fresh coat of paint, you can put it on the market. You won’t need as big of a budget as you would if you were going to live there.
Rental property – Research the rental market in the area to make sure you can attract tenants easily and so you know how much you’ll likely get in rental income. This will dictate your budget. As with flipping a home for profit, you’ll be able to do cheaper updates than if you were going to live in the property.
Buying a property to renovate has a lot of advantages. You have the opportunity to make a huge profit if there are no expensive surprises when you do your renovation. You also may be able to enter the property market sooner than you would by purchasing an up-to-date home. Australia has one of the most high-priced property markets in the world, so for many Australians, purchasing a budget-friendly, under-valued home and doing renovations may be the ideal way to purchase a home in a decent location.
But, the downside is that renovator’s delights themselves can end up being expensive headaches. Factors like getting permits from your local council, renovations going over budget, surprise problems, supply cost increases, and builder mistakes can extend both the length of your renovation as well as the cost.
In order to weather the possible storm, make sure you factor the unexpected into your budget – setting 10% to 20% of your budget just for surprises.
If you are renting or selling the home directly after renovating, focus on aesthetics and those features that will add value, such as more emphasis on the kitchen and bathroom, the two areas of the home that usually drive up home sale prices.
And, if there is one area you want to invest in, it’s in your inspections. It’s a good idea to get a building and pest inspection. It also doesn’t hurt to get a second opinion – one inspector may miss something another may spot. This will also give you peace of mind that there isn’t a hidden problem like mould growth or a termite infestation that could potentially sink your budget.
When you are renovating a property, what do you need to budget for? Renovations include a lot more than painting and installing new appliances. Here are a few basics you should include in your budget:
Roofing – Chances are, your fixer-upper will need some roof work. Find out if the roof needs to be replaced or if you can simply have a few minor repairs done.
Rewiring – If your renovator’s delight is old, it may need to be rewired. This will eat into your budget without improving the visual appeal of the home, but you may have to pay for it to ensure the house is safe.
Windows – Windows are a big issue, especially with home sales or if you are living in the house, because of how they can impact energy costs and add value. Replacing windows can easily cost over $20,000 for a typical four-bedroom house.
Flooring – If you are renting or flipping, you can choose cheaper flooring materials like vinyl or budget-friendly carpeting that look great but aren’t as long-lasting as real timber or plush carpeting. If you want hardwood flooring, on the other hand, expect to pay between $55 and $80 per square metre.
Landscaping and outdoor spaces– Don’t forget the outdoor spaces. You may be able to hold off on this expense if you are moving in. But if you are renting or selling, you’ll need to budget $10,000 to $15,000 for landscaping, hardscaping, and other outdoor features.
There are a lot of moving parts that need to come together to ensure your experience will be successful. From inspections to getting the right home loan, doing everything right could potentially save you a lot of money. Do your research but also make sure you are working with experienced professionals, from your realtor to your builder. With a strong team on your side, you’ll be more empowered to make your vision happen. Whether you’re looking to renovate your existing home or buying a house to renovate, if you need help refinancing your loan, contact our experts today.
Written by Refinancing.com.au
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