We employ many strategies when it comes to our real estate investments. There is this particular strategy where we buy a home to renovate and sell it off for a greater price. Yes, you can call it site flipping. Even if you do not plan to sell, you can use the renovation strategy to turn the newly brought property into a home you have always longed for. All this looks good but there can be ample hindrances along the way.
Maybe you miss out on reading the contract very well and end up buying a property with an easement/encroachment. Or you may have bought a property which requires too many structural alterations, or is not renovation-worthy or located in a blink-and-you’ll-miss neighbourhood. Such mistakes can hit your ROI hard. Let us find out what we must ponder before we buy a home to renovate and read about that one particular aspect we often miss considering.
# Take a good look at the contract (and old properties) before you buy a home to renovate
It is wise to be wary of old properties. They can be great for renovation but can also have strict limitations imposed on them. Put another way, there are things you can do with them, and there are things you can’t. Before you start, I recommend that you double-check the drainage plan. You need to avoid constructing over a sewer, after all.
Probe deep into the contract and prefigure if there is an easement or an encroachment clause. Both of them can be real dampeners when it comes to your buy-to-renovate plan. With easements, you will find difficulty in extending your property. With encroachments, you may stumble upon odd ways your neighbour is attached to your property.
I had this acquaintance who bought a well-meaning property but missed out on reading an egress encroachment clause mentioned in the contract. He found to his great dismay that the emergency exit of his neighbour’s home passed through his backyard. What a bummer!
If you have an addition in mind, go through the Floor Space Ratio in detail with your renovator. You must, at any rate, be aware of the norms that govern height and setback criteria while extending your place. The idea is to be in sync with the contract and avoid any surprises in the future.
# Look beyond properties that need too many structural alterations
If you are buying to renovate, your ideal option is to go for those properties which require only cosmetic work. Structural alterations may make things difficult for you for two reasons. One, they can easily lead to overcapitalisation (going beyond the budget). Two, when you are talking about a structurally deficient property, it might occur that despite your best renovation strategies, the property remains what it is–structurally deficient.
Neither will you be able to add any value to such houses nor will you be able to find buyers for them when it is time to sell them. Even if you do not have any plans to sell in the foreseeable future, the last thing you would want is a property with walls reeking plaster or walls that are set back by a wrong distribution of load.
If the property has a great bone structure, you can do some magic with it with the help of subtle cosmetic additions. The floor plan–like structural strength–is something you must be able to work with. If you have a handy floor plan, you can make infinite alterations to the property without making any structural changes to it.
While buying a property for the purpose of renovation, it is crucial to go through plumbing, dampness (moulds and humidity), state of electrical wiring, and presence of asbestos. The last one can be most harmful as it can lead to various diseases including Mesothelioma (asbestos induced cancer).
For older homes, you should be particularly wary of asbestos as they belong to a time asbestos wasn’t phased out. Termites can also be quite a sting to your renovation ambitions. With them, you can never be sure of the extent of ruin unless you strip off the walls and look deeper. By this time, you will realise that you may have to overbudget substantially if you have to get rid of the problem. It’s a good reason to get a pest and building inspection conducted prior to purchasing a property.
# Always look to add value
Even if your idea is not to resell the house in the near future, it is prudent to keep the future prospect of resale on the radar. Naturally then, it becomes essential to think of ways to add to the value of a given property. For this purpose, you should find out which kind of renovation projects work for your neighbourhood and which don’t.
Some neighbourhoods appreciate cosmetic renovations like swimming pools while in other locations, they are not even given a second glance. For what we know, structural additions like a master bedroom may be a really worthy investment in those neighbourhoods. With time, we have also risen to the urgent need of environmental-friendliness, energy efficiency and insulation. While renovating homes, you must consider these prerequisites, too, just as you should carefully look at the orientation.
Orientation refers to how your property is positioned in relation to the pattern of the blowing wind and seasonal changes in the path of sun. If your orientation is perfect, your home will automatically become more energy efficient. A northerly orientation is considered by far the most desirable in Australia.
In summer, you can use eaves to shelter the northern flank of your home and in winter you can let ample sunlight come through. Walls and windows that face north absorb more solar radiation in winter than they do in summer. It is wise to use higher walls on the northern flank. This limits summer exposure to the sun and maximises its winter percolation.
For achieving best results with your orientation, you should add windows to the walls on the northern facade. If you already have a window, you can increase its size. Your skylight should also be oriented towards the northern direction. This helps in fetching light into the backside of rooms. For two-level houses, skylights oriented towards the north can help bring light through the staircase.
# Don’t get carried away by first impressions
Over my working years, I have also held in great esteem the “art of looking beyond the initial impression”. Some homes can look real unattractive to you at first glance. However, believe me when I say that these can actually be your treasure trove. Why? Because, however ugly they may seem, they are likely to be the perfect fixer-upper which require only cosmetic additions. Word of advice- if the structural skeleton is strong, ugliness can be a blessing because it would mean the home won’t draw too many prospects and you can bargain real hard at the negotiating table.
When it is time to renovate, all you may require doing is to work through the ugly placement of tiles and carpets. A few more changes here and there and you will have a spic-and-span, fairly modern home ready. Such homes, if you are ready to bypass the first impression, can turn out to be high ROI projects for you.
Before else, you must get the prospective property assessed. It will give you a hint about whether it is a renovation-worthy property or a money-drain.
# Location (it has been said time and again) is the key
We never get tired of hearing about location being the key to property hunting. Even if you buy the worst property in a great neighbourhood, you can still give yourself a pat on the back. If it is a high-on-preference neighbourhood, it will attract potential buyers. Now, it is true that if you purchase the worst property in such a neighbourhood, you will have plenty of work up your sleeve. But that can be done, right?
All you will need is an enterprising renovation specialist who can start from scratch, blend form with function, dig into council requirements, go for the really needed structural alterations and at the same time improvise with cosmetic additions. Yes, the project won’t naturally be covered by a shoestring budget but the expense incurred on renovation will be more than offset by the resale value it will fetch in the future. Remember, we are talking about a much sought-after neighbourhood.
There was this client of mine who bought a property and wanted to start with its renovation right away. She was annoyed at seeing a page of a 1950s newspaper popping out of the kitchen walls (it was 1996). She could sense that the property hadn’t been touched for more than 40 years and she was right. The house kind of a mess but it belonged to a prized neighbourhood.
Eventually, what looked like a bad investment to her turned into a dream project in little time. All I needed to do was get the floors polished, sheets, tiles, curtain, blinds and upholstery redone and the bathroom and the kitchen repainted. To my memory, it cost her something like $12,000 (It was two decades back) but the difference it made to the resale value of the home brought an instant smile on her face. To this day, that smile lives in me. I take up projects with a far bigger scope today but those were early days and you did not complain about what came your way.
I just want to reiterate that following the old saying, “purchase the worst house in the street” can be the way to go.
# Fight the threat of overcapitalising
Even if it is a fixer-upper which does not involve a really big canvas, I would recommend you to use a professional. I cannot overstate the importance of hiring a renovation specialist. Look at it this way: Just as a renovation contractor is not expected to be good at economics or sports commentary or novel writing or whatever you do, you are not expected to be great at his job. We make the mistake of going DIY with our own home renovation projects because we are too familiar with our homes and we feel we just can’t go wrong. Newsflash-: you can go wrong. Badly, even.
There are matters of form, function, design and scale to be considered. How much do you know about load bearing walls (and other structural changes) or the floor plan of a master bedroom, among other things? There are ample examples of DIY renovations gone wrong. Sadly, halfway through such projects the mess created by the homeowner becomes nearly irredeemable. Even if you want to undo the damage by hiring a professional at that stage, the budget will only shoot beyond the stars.
I advise that you go for a fixed price contractor who lays down in writing what the cost of the entire project will be. Of course, there are contingencies and they can spike the budget 10%-15% in excess of the predefined one. That is understandable. What is not is if too many hidden costs begin to appear and take the budget 50% over the original quote.
Before you plan on “buying to renovate”, speak to professionals and get cost estimates from them. Unless you do, you may be in for nasty surprises later.
Execute the buy-to-renovate idea well
Buying to renovate can be a terrific strategy. If you plan to resell your property then it is like a site flipping experiment that can bring in a smart ROI for you. Even if you do not have resale in mind and are renovating to put a personal stamp on your residence, the project can bring a lot of peace and contentment.
There are definite hurdles along the way which can take the joy away from your renovation project. I feel, however, that paying heed to the above mentioned tips can help you out to a great extent.
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