The combination of a strong housing market, high mortgage rates, and meager inventory is forcing some would-be homebuyers to settle for less in the home or neighborhood they prefer. But others are approaching the homebuying process with an entirely different mindset. Buying a home in less than move-in condition, or one that requires significant work, can result in a bargain. But there are very distinct trade-offs, and there’s a fair amount of risk involved. What seems like a way to save money or get a good deal could be very expensive in the long run. It’s not just money at stake – time, relationships, and mental health can all suffer from a long renovation process.

Entire streaming channels and social media feeds are full of DIYers doing everything from undertaking trash-outs in hazmat suits to uncovering hidden rooms and dealing with decades-old vegetation. Along the way, they seem to find historic fireplaces, vintage tiles, and all kinds of amazing treasures.

It looks romantic and makes for great content, but the reality is a long, expensive, and risky process. It’s important to develop a plan before you commit.

It’s Still Location, Location, Location

Even if it’s the (rundown) house of your dreams,  if the location doesn’t fit your lifestyle, it might not be for you. Prioritizing location over the house can make sense, as it can make a difference in the overall value of the home on top of your renovations.

If you find a home in a sought-after location, it can also create a built-in relief hatch in case things go wrong or you get less than you bargained for. A partially renovated house in a desirable location is an easier sell, and you may make money on the flip in addition to getting out from under a burden.

The Money Pit Red Flags

Replacing kitchens and bathrooms, adding additional electric and plumbing, and reconfiguring layouts for modern life can be expensive but are expected when buying a true fixer-upper. But there are other problems that will be even more expensive to fix and may delay your project. This can create serious cost overages.

Do a very comprehensive walk-through, film and photograph everything, take notes, and then have another look at everything before you make a decision.

1. Do you see mold, smell moisture or does it feel damp?
2. is the foundation cracked? What is it made of? Old fieldstone or brick foundations are lovely, but the craftsmen that can fix them are hard to find and expensive to hire. You may have to go with more modern concrete block foundations.
3. Do you need a new roof? The lifespan of a roof is about 25 years, and in some states, you may have difficulty getting insurance if the roof is older than that, even if the roof looks ok and there aren’t any leaks.
4. What condition is the siding in? Some forms of older siding, like asbestos shingles, can be expensive to remediate. While you are looking at the siding, also have a look at the windows. If you are going to replace siding, windows are usually done at the same time.
5. How old is the electrical wiring? Does it have an old-school fuse box or a modern circuit breaker? Beyond the extensive costs of the rewiring, it may be necessary to demo down to the studs and start over.
6. Check the water pressure by turning on multiple taps and flushing. Does it drop? Does the house have municipal sewer access or a septic tank? If it has a septic tank, asking for an inspection before you close is important. Septic systems are expensive to install, and it may be necessary to radically reshape your lawn to replace an outdated system with a modern one.

Create a Budget – And Allow for Overage

Paying a contractor for a consultation to help you understand what will be necessary can be money well spent. In addition to the scope of the project, the contractor can help you determine the right order of operations. It’s important to understand what the dependencies are for each stage of the job and to plan adequate timing for permits, inspections, weather, or anything else that can throw you off track.

Building 20% extra into your budget can feel like a huge additional financing cost, but it avoids problems, and planning in advance for adequate funding can save you money in the long run. Relying on your credit cards should not be an option.

Understanding a Renovation Mortgage

A renovation mortgage includes funds for the repairs to the home. A conventional mortgage can’t exceed the value of the home, less the down payment. With a renovation mortgage, the loan includes the purchase amount and additional money to pay for renovation costs. There are several advantages, including the ability to buy a home that would not otherwise be eligible for financing, and the lower interest rate available for a first mortgage. You’ll also only have one loan payment. If you buy the home with one mortgage, and then take out a separate home improvement loan, interest will likely be higher.

However, the benefits come with the requirement of limits and oversight on how you use the funds, and there are extra paperwork requirements and additional inspections.

The Bottom Line

Buying a home that requires a serious commitment of time, money, and effort can result in getting a good deal and a home you love. But do the research before you commit.

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