How does Buying-and-Renovating Work?
A Simple Guide to this Two-Step Process to Create the Dream Home
Buy & Renovate Home Buyers – it’s a trend made popular by both HGTV-type entertainment shows and by nature of the lack of reasonable move-in-ready homes on the market in past years. Could this home buying option be right for you? Let’s dive into the process & the pros and cons ...
One of the specialties of my business is to help buyers find a home that is a perfect canvas for renovation (light to full). It requires a particular skill set, an understanding of home building and construction, and an up-to-date knowledge of construction costs. It also requires me to know your all-in budget
ALL IN BUDGET – First, consider if your all-in budget is practical for both buying a home in your preferred areas and also renovating. A simple search on any consumer home buying site like Zillow, will show you what homes have sold for in a particular neighborhood. If your budget is maxing out at the norm of what homes are selling for, then chances are there might not be room in the budget for a renovation as well at this time; or, it’s time to consider a different neighborhood for more flexibility. I like to allow at least $50k in the budget for renovation and usually $200k to truly be practical when we’re looking at a partial home renovation. If we can capture a home around $200k under your budget, that only requires partial renovation, it’s a win. In today’s market, in the most popular suburbs, an all-in budget of $550k+ is usually reasonable, while $700k+ is the most practical. In shoulder suburbs, we can often find a home with great bones for less, allowing more for renovation.
HOW MUCH DOES IT COST – Truly, it depends on the “scope” – the list of work you want to do and the products that are required. A kitchen renovation and an addition are two of the pricier renovations but also two of the renovations that hold the most value. Cosmetic updates to various rooms (a new bath vanity, removing a non-structural wall, new flooring) are much less costly and usually won’t require a full team to do. Depending on which avenue you choose, there are different ways to pay for a renovation:
1. Financing through a renovation loan: A homestyle renovation loan will cover the cost of the home purchase plus the renovation. This is a Fannie Mae mortgage product and operates just like a conventional home loan. These loans can also be refinanced later back to a conventional loan, and have low fees. The caveat is that not all contractors – especially small ones -- will accept this type of financing (it comes with a lot more hoops); and also that any future renovation must lead to a higher appraisal value on the home, as determined by a bank appraiser. In other words, you must be adding value. Also, only certain lenders offer and are skilled at this type of financing – if you think this is a fit, reach out to me for my list of preferred lender partners who specialize in these loans
2. Financing through a HELOC: Once you’ve been living in the home, a Home Equity Line of Credit is often available to you based on your equity in the home. Lenders who specialize in HELOC products allow you to borrow back money you’ve invested in your home as cash to pay for renovations. These types of loans take about 4-6 weeks to process and ca be a great option for allowing you to finance your renovation and pay for it gradually through your mortgage
3. Other financing tools like lines or credit, gifts from family, or 401k or investment accounts are also an option
4. Paying Cash: Most contractors will appreciate a cash client and sometimes your cash can go further in allowing you to choose any contractor (or mix thereof) and to get a job done quicker and sometimes for less overall cost
THE PROCESS - First, we identify your budget, location & tolerance for a large or small renovation. Next, I help you find a home that is a perfect canvas for a right-now renovation or can take a renovation down the line. We offer on the home just like we would any home, and we move through the closing process WHILE starting our renovation vision! The team begins assembling based on your needs for an architect, construction team and/or interior designer, and your vision begins coming to life. After closing, we continue to hone the project until you are happy with the scope & price. And then, permitting & demolition begin!
Every renovation is different, every scope is different & every home is different - and we’ll always cover your best options when we’re working together based on this.
I always cringe when I watch some of the home renovation shows – obviously there are sponsors involved but the costs shown of some of the renovation scopes are going to be woefully misleading for most of the general public. How to be informed & prepared? Partner with a real estate specialist who can talk through real-time examples, give you ideas to creatively stretch your budget, and who can work with you to find the right team. I always say to my clients – renovation is not always a way to get a cheaper home, it’s the way to get the home you want.
Ready to talk about if renovation is right for you & the steps involved? Reach out to me today here.
