Investment or fixer upper?

Renovation-

The Showroom Blog

Investment or fixer upper?

For many of us, buying a home is always a daunting and intimidating milestone in life. Whether you are buying a home for your growing family, relocating to a new city, or needing to downsize from the now to large family home, every buyer is looking at buying a home differently. A lot of time making this change as least complicated as possible is best. The bright new shiny home’s are easy to move right in to, even though you would change every option and possibly still need to paint every room. There is just something about a new home, that makes even things you do not like about it tolerable. You then have, what I call the forgotten home’s. The worn out home’s that have been unloved for ages, those take a special person. There are pricing premiums associated with both. Navigating this balance of ease and investment is tricky. I hope to give some on how, and where to start looking at home buying from an investment point of view.

Currently my  husband and I are finishing up our second “flip” project. Since day one, I have honestly been terrified to pay the new home premium. My husband bought our first home around 1800 sq. ft., soon after we were engaged. I thought the reason’s we used then were because we were just starting out, but they hold true no matter what stage in your life. Pro’s for purchasing a home that needs love can benefit, from affording a larger home, to a larger amount of expendable income each month due, to having a lower mortgage. The possible premium after the home is bought can be avoided as best as possible with the proper planning.

The endpoint should always be your starting point. 

The future sell price on the home should always be the starting point. This can be establish by looking at remodeled home’s nearby with comparable square footage, bedrooms, and bathrooms. Look and see what they were listed for per sq. ft., and what they ended up selling for. As a possible buyer, you should already be thinking of the home from a sellers stand point. You should not buy a home without doing so. Unless your are planning on living in your home forever of course. Some of the best websites for personal research in the real estate business are Zillow, Realtor, and Trulia, each are useful for different things.

  • http://www.zillow.com: Best for researching previously sold homes in the area and is super easy for “For Sale by Owner’s” to utilize
  • http://realtor.com: Best for having the most up to date listings, but not all realty companies in our area utilize this site.
  • http://Trulia.com: Has the easiest to use crime mapping if the area.

Researching areas around a property takes serious time, but it will be worth it in the end. Talk with different real estate brokers in your area to get different opinions on the potential value of the home regardless of the current state.

There is a ratio that some investors use, that is referred to as the 70% rule. This is a theory that the purchase price, repair cost, carry cost, and closing cost should not be over seventy percent of the possible re-sale value. From a strict investment standpoint, I do believe this theory holds. From a basic home buyers standpoint that number can waiver some. Caring cost are things such as insurance, utilities cost, and interest of the home loan. Whether you purchase an already re-done home or a home that needs to be renovated, those costs will still be incurred. Getting the accurate amount for estimating renovation costs is key to calculating the 70% rule.

This number always seem’s to be so aloof, thanks in most part to reality TV. Yes, depending on whether you are wanting builder grade products in your home, or whether you are going to want marble will be the largest pricing change. Just in real terms you are looking at a materials cost for a medium walk in shower. The cost for the typical subway tile would be $500 to $700 and marble would be upwards of $1,200 to $3,000. If one was to use https://www.biggerpockets.com/real-estate-investing/find-propertysay marble subway tile shower with a decorative wall inlay, the materials cost could rise up to $3,000-$5,000 just for materials depending on the various product details. (Labor for sub contracting trades are pretty industry standard.)

Communicating what grade of finishes you will be expecting in your finished project to your contractor will give you a much more realistic.  Also using a contractor will add a normal range 20% to 30% to the cost of repairs. I did not use a contractor on either of our home renovations, so far. (We possibly will be expanding our basement, and I will definitely need some help with that.) I probably didn’t use a contractor, because I like to think I can do anything no matter the stress or headache. I also am super frugal. haha

The details of the design do not have to be permanently nailed down before the home is purchased. Large ticket items, such as structural changes need to be pointed out as soon as possible. These things are not always foreseeable, and that is where the contingency budget comes in. I like to use a contingency fund, that can range from $5,000 to $20,000 just depending on the renovation. Using a contingency and still being close to the investment formula range, probably means that the house is going to be a pretty good investment.

Be sure to consult local real estate brokers, contractors, and designers will all help lower the stress of the renovation. In it’s most simple form a home renovation is a thousand decisions compiled and multiplied to create a wonderful creation. I am a terrible decision maker, but the end result is so rewarding. The key is to not get overwhelmed, and to take each decision one small step at a time.

 

 

 

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