If you’re currently looking at investing your money in buying a new property, you’ve probably already considered the potential benefits of buying a slightly older building and renovating it. While this is often a reliable way to turn a more profitable return on your investment, buying a ‘fixer-upper’ is not for everyone, and there may be elements to such a large commitment that you haven’t already considered. While every new home or property is going to need varying amounts of work to make it match your needs, buying a property that you know in advance will cost you a significant financial extra may be putting you off taking the plunge.
You love your house, but you need more room. You want a new house, but you love your neighbours. Your house has charm, but it needs a new look. You want to move into a different house, but wish you could take your yard with you. These are the dilemmas that motivate homeowners into making an important choice — do you buy a new home, or renovate your current home to meet your needs.
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Buying a Fixer-Upper vs. Buying New: Which Is Better?
YOU HAVE A LOT OF decisions to make when choosing what home to buy: where you’re going to live, the size of the home and the amount of work you’re willing to put into it.
You may want to move in with no work involved, or you may not mind freshening up a couple of rooms to match your style. Or you may want to buy a home at a lower price that needs a lot of work but has good bones.
Here are a few considerations to help you decide if buying a fixer-upper or a newly constructed or recently renovated house is the right choice for you:
Fixer-Uppers Are a Work in Progress
Fixer-uppers are often the top choice for first-time homebuyers who are limited by their budget and people who prefer to take on a project.
Whether you’re looking at fixer-uppers because they fall in your price range or because you like the idea of taking on a major renovation, the scope of the work involved has to be something you’re willing to take on. With a tight budget, you may be doing many the renovations yourself or spacing out the remodel room by room while you save up. If that doesn’t appeal to you, a fixer-upper might not be the house for you.
If the work needed in a fixer-upper sounds unappealing, narrow your search to new construction and recent renovations that check all the boxes. If you like the idea of renovating right away to customise the space, focus on fixer-uppers.
You’ll Be Renovating Anyway.
Unless you’re moving into a new, customised house, there’s a good chance you’ll be making at least minor renovations to your home. Raf Howery, founder and CEO of home information and data company Kukun, estimates 60% of all homes bought get remodelled to an extent, regardless of their living condition at the time of the sale.
In many cases, even if a kitchen or living room doesn’t feel dated, you may want to paint walls, replace flooring and restain or add cabinets, for example. “Most people will have to put that stamp on their home,” Howery says.
If you want to make tweaks and customisations to your home, you may want to buy an existing house with a lower price tag to make up for the additional money you’ll be spending on renovations.
Fixer-Uppers Require a Lot of Planning
For a fixer-upper that needs a lot of work, you’ll likely have to begin planning your renovation, including establishing your total budget for the project, determining the scope of work needed and creating your timeline.
You’ll want to recruit a team of professionals that will help you complete the renovation, and that may include more people than you think. If your renovation will be lengthy and involve heavy construction, you may need a construction insurance policy to protect the property. But your insurance company can also be a resource for determining priorities in the rehab of the house, and We can help you pick out those things (in the home) that might lead to deferred maintenance issues.”
Buy a new property or renovate – what’s cheaper?
If your property is outdated and you’re confronted with the dilemma of buying a new property versus simply staying put and renovating your established home, deciding which option is more cost-effective for you will depend on the size of your renovation.
What are the costs involved in buying a new house?
Aside from the obvious cost of your dream home’s purchase price, there will be a few other upfront costs involved, some of which you may already be familiar with:
- Stamp duty: You will be required to pay stamp duty again with any title transfer, which is by far the most expensive cost to think about. Try our stamp duty calculator here.
- Refinancing costs: Depending on how flexible your loan is, changing your loan terms will require additional costs.
- Home loan application fees: These are fees charged by a lender to apply or establish a loan. This can sometimes be waived, ask your Home Loan Specialist to help negotiate this for you.
- Legal fees: Like the first time you purchased a property, legal and conveyancer fees are an unavoidable cost to buying a new home.
- Real estate agent fees: Most agents will charge you around 2% in commission fees to sell your home.
- Building inspection costs: It’s always important to arrange building and pest inspections to be assured of a home’s structural integrity, which will apply to your new home.
- Costs of moving – Packing up your life and moving house will cost money, and whether this is due to hiring movers or simply making the extra purchases, you’ll need in your new home.
What are the costs involved in renovating?
There are also plenty of costs to think about when renovating, you’ll need to factor the below into your renovation budget:
- Building materials and labour: The cost of this will vary depending on the size of your renovations, and you will need to factor in the cost of hiring builders and contractors.
- Costs of hiring various professionals: Depending on your needs, this could include a project manager, designer, architect and structural engineer. Read more about the professionals you might need to hire here.
- Council fees: Some renovations require council approval before commencement, and it’s always a good idea to check with your local council whether you’ll need to pay any fees before doing so. Generally, the size of this fee will depend on the overall cost of your renovation.
- Rental fees: If you need to move out of your home during the renovation period, you’ll need to consider the extra costs of rent on top of everything else.
- Emotional costs: Renovation projects can come with their own set of emotional costs. If you’re planning on living in your home while you renovate expect that you may be living in a construction site for a time.
Things to consider before buying a property to renovate
According to Hagerty, here are the basic “bottom lines” a buyer should consider when considering buying Grandma’s house, or any renovation property:
Ask if the property was ever vacant.
If so, make sure it did not fall into disrepair. If you’re lucky enough to find a Grandma’s house, it was probably never unoccupied but rather lightly used in recent years, and likely in great shape where it matters.
Look past the surface.
A lot of historic properties marketed as renovated were bank-owned and may have been vacant for years. Certain upgrades give the appearance of quality, like stainless steel appliances and granite countertops. Still, they may have been done in haste while other, more important, issues like electrical wires, the roof, and HVAC were neglected.
Inspect the bones
The most fundamental (and often most costly) renovations will include roof/gutter replacement, windows, and HVAC replacement. In most cases, these are the kinds of issues that will cause your offer to fall through during your inspection, so it’s best to weed out these homes at the get-go.
Brave the scary basements
Nothing can mess up a house faster than a water issue, so look for water in the basement and, if necessary, either pass on the property or budget for a drainage system.
Keep future renovations in mind.
If you know you ultimately want an open layout, have your contractor do wall demolition before you even move in.
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Consider your ROI
Like a finished basement, some renovations are not always going to increase your resale value as much as you paid for them. Others, like adding a bathroom or half bath on the main level, will.
Depending on your scope of work, it may take a contractor 30 to 90 days to complete a renovation. Having a flexible living arrangement or being able to go month to month with your landlord is paramount while the renovation is being done.
Find the right person for the job.
Hagerthey recommends interviewing and getting quotes from at least three to five licensed contractors.
Therefore, we’ve put together the most likely pros and cons that you ought to consider when buying a property to renovate.
Create the home of your dreams for the same total price
Finding the perfect property in your ideal location can be extremely difficult, but buying a rundown property in your desired location might be a viable alternative to consider. If you are serious about renovating for profit, buying the worst house, you can find on the best street that you can afford, as that gives you maximum scope to add value. In its current condition, the property will likely put many people off, so the price should reflect that. As an individual renovator, you can’t influence an area or change the street, but you can completely transform the house, totally rebuilding it if necessary.
Most of the profit is made in the purchase rather than what you do to it, so the price you pay is crucial. Ideally, you will want to buy a property that has potential that others haven’t yet spotted, and so you aren’t paying a premium for it. The chances are unless you’re buying a large property, the potential margin for profit is relatively narrow, so you’ve got to consider what you’re happy to pay.
Potential to add some serious value
It’s well known that certain investments are almost fail-safe. Investing in areas of the home, such as kitchens, bathrooms, and unused spaces (lofts and basements) can add substantial value to a property. It’s estimated that spending £10,000 on a new kitchen could add between £20,000 and £30,000 onto a property’s eventual value. Similarly, a loft extension could cost you around £35,000. Still, it has the potential of adding up to £100,000 in value to a property if another bedroom and bathroom is added, depending on where the property is located.
Even smaller projects can make your new house feel like home.
Not every ‘renovation’ project needs to be a huge undertaking or large profits in mind. If you’re struggling to find a property you genuinely like, sometimes taking on a project is a nice way of creating a home you do love. Small defects do not directly affect the value of a property, and however, together, they will prevent it from selling at the optimum price. The following are typical defects that will put many buyers off, yet can be easily fixed by any competent DIY’er:
– Peeling paint
– Squeaking or sticking doors and windows
– Door latches that don’t work
– Mouldy sealants in kitchens and bathroom
– Dripping taps
– Loose tiles
– Sewer smells
– Broken or damaged windows
– Squeaky floors and stairs
– Cracks to ceilings and plaster works
– Lifting flooring
– Dated décor – yes, this includes artex ceilings and dado rails!
You’ll likely run over budget (and out of patience!)
While there is great scope for adding value to a property by renovating it, there is always a risk of overspending on the project, without adding real value. Just because you have spent thousands on doing up the property, you’re not guaranteed to receive thousands back. When completing a property renovation, you have to be realistic about what you want to achieve, and well-informed on how you’re likely to achieve it. Arguably most important of all, you must be strict with the budget you have set.
It’s best to allow for an extra 20% on top of your initial budget so that you can be prepared for any unforeseen issues, especially if structural work is required. A simply rule might be: do not spend money on making a major change that will not add to the value of the property. This is where working with your local Romans property experts could come in handy.
It’s easy to underestimate just how much ‘renovation’ needs completing.
Picking the right property in the first place is very important. While you may be open to buying a home requiring a lot of work, you need to be realistic with how much work you can commit to. Suppose you choose to invest in an older property, for example. In that case, you need to note that some old buildings may be harder to insure and could require different renovation techniques to avoid further damage, often costing more money.
There’s a risk you won’t add real value.
Additionally, you have to realise the limitation of how much value renovation can add to your property. Demand for properties is often reflected in the area’s popularity, rather than the interiors, so make sure you don’t make bold, large changes without considering how much value it will add. Remember the saying “it’s better to buy the worst house on the best street than the best house on the worst street”? This certainly applies here, even if the ‘best house’ still requires lots of work.
DIY vs. tradesmen
Buying a home in need of renovation is not something you should rush in to. Even after researching and finding a property with the potential to be perfect, you still need to consider who is going to carry out the work. Since you are likely to spend a lot of money on the project, it is vital that you find tradespeople you trust, whether you have worked with them before or have had them recommended to you. Do your research: never go with the cheapest option just because you think it will save you money.
Investing in a project manager to oversee the project (especially if you live far away, cannot manage the project yourself due to other commitments or are simply inexperienced in property renovation) is a good idea. Project managers will make sure the builders carry out work to your specification and make it more likely for the project to remain on budget. But the downside is that you will have to pay for their expertise.
Is It Wiser to Renovate or Buy a New House?
A wise real estate agent will tell you it is all about location. This plays a big factor in the new-versus-renovate question. If you adore your neighbourhood and have qualms about leaving behind cherished neighbours, amenities and the feeling that this place is home, renovation may be the wiser choice. Better yet, if your current house sits in a trendy neighbourhood where real estate prices are on the uptick, a renovation can be a smart financial move, too. Ask for cost estimates for the remodelling project and then determine the completed project’s fair market value. If the new sale price outweighs the cost of the renovations, the decision may be a no-brainer.
The recipes for buying a new home or renovating a current one share a common ingredient. They both require money and financing. A new house means qualifying for a new mortgage. If you recently changed jobs, have incurred substantial debt or anticipate other big-ticket purchases coming your way, the timing may not be right for a mortgage application. If you have a decent amount of equity built up in your current house, you may be able to swing a home equity loan to pay for renovations. Keep in mind that a home equity loan will also incur closing costs such as appraisals, title insurance and credit reports. Buying a new home, and selling your current home, also means real estate commissions, seller closing costs and the expenses involved in moving your belongings from one location to another.
Additional room is very often the motivating factor for wanting a new house. Renovating an existing house offers two options for expanded space — up or out. Adding a second story onto a one-story home may be a viable plan, but two extremely important factors need consideration. First, you need to know if the home’s foundation can support the additional weight or require reinforcement. The second consideration is whether local zoning code allows you to build up. Building out will increase house square footage, but eats away acreage in the yard. If you choose to add on to your current house, be sure you have ample yard space and that the plans are within required setbacks or right-of-ways.
Finances, location and the brick-and-mortar that make up a house are all tangible pieces of the decision-making puzzle. However, intangible factors can also tip the scales when balancing the pros and cons of buying a new house or renovating. A renovation is a long, arduous process that demands patience and flexibility. Living under far from stellar conditions can fray the last nerve after a few months of flying dust, the constant sound of power tools and a bevy of contractors walking through your home. On the other hand, if the thought of packing up and leaving the cozy comforts of your current home gives you uncontrollable willies, the discomforts of a renovation may pale in comparison. Know what you can and can’t tolerate before putting the for sale sign in the front yard.
When should I sell up and buy?
Deciding whether you should buy a new property or renovate should align with your financial objectives. It can be more cost-effective to renovate your existing home if you intend to make some minor upgrades. A big deciding factor can be if you’re already living in the location of your dreams and intend to live there long term, staying put and making some changes to your current home can be more sensible than buying a new property.
As well as that, if the value of property in your area is growing, it may be worthwhile to renovate now as a capital growth occurs for future investment. If you do decide to move, you can use this as an investment property. However, with renovations, you need to consider your costs carefully to ensure you do not overcapitalise.
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When should I stay put and renovate?
On the other hand, it can be more cost-effective to renovate your existing home if you intend to make some minor upgrades. Furthermore, if you’re already living in the location of your dreams and intend to live there long term, staying put and making some changes to your current home can be more sensible than buying a new property.
As well as that, if the value of property in your area is growing, it may be more worthwhile to renovate now as a capital growth occurs for future investment. However, with renovations, you need to consider your costs carefully to ensure you do not overcapitalise.
In other words, if you factor a renovation into your mortgage and use enough patience, vision, and elbow grease — you could see a nice return on your investment, plus a few inherited trinkets (like the Elvis clock) along the way!