As a first-time buyer, you might consider buying a house that requires renovation, since it is a tempting prospect. In fact, even experienced investors are interested in fixer uppers. Indeed, there are plenty of advantages to such type of properties. This guide covers everything you must consider before buying a rundown house.
When it comes to fixer uppers, the mortgage is not the same as an ordinary mortgage. As such there are many factors you need to consider before you sign up for one.
First, let’s look at the process of getting a mortgage for a house that needs renovation. Then, we can move on to the factors to consider.
How to Get a Mortgage for a Property that Needs Renovation
Mortgages for home renovations are not the same as regular mortgages. The primary distinction is that you will take out a loan for the purchase of the property and the remaining funds for renovations.
The difficulty level of finding a mortgage depends on the condition of the property you are purchasing. Before you get to work, you should perform some checks.
A lot of mortgage lenders and high-street banks do not offer mortgages if:
- The house does not have a functioning kitchen or bathroom, making it unhabitable.
- It is an abandoned property because of neglect or any other reason.
- There is a need for conversion.
You must prepare for lenders to run more checks than they would with a standard mortgage. They want to make sure that it is not a risk for them.
Additional Factors to Consider with a Renovation Mortgage
In a scenario where the property is habitable but requires work, a lender may refuse to lend the full amount. They can choose to withhold some funds until completion of necessary repairs. This is called retention. To release the remaining funds, they may need to re-assess the property.
You should have a contingency in place since there are abundant complications and risks involved with a renovation mortgage. A renovation project comes with plenty of unexpected difficulties. Therefore, you should have enough money to counter those challenges.
Factors to Consider When Buying a Rundown House
Following are the points you should consider:
It is important that you make a realistic budget from the get-go. Usually, people spend twice as much as they expected. It is ideal to add a minimum of 20% for any unexpected problems that can eventually come forth.
A house that requires fixing is cheaper to purchase initially. However, you need to consider if you have enough funds to perform the necessary improvements. For example, you want to focus on a new kitchen and bathroom. Yet you come across damaged brickwork and rotten floor joists.
Getting Planning Permission
It is important to check how easily you can get planning permission for your property. Suppose you are looking to make extensive changes. Then, you must get consent from your local authority. Same is the case if you want a purchase a listed building. It can take the council up to 12 weeks to decide after you submit your application. This way the neighbours can have their say.
Currently, there is no need to plan approval for smaller renovation projects. Therefore, you can find plenty of fixer upper properties to start working on straight away. To find out more about buying a rundown house, go to the Government’s planning portal website.
You have the option to either hire a project manager or manage it yourself. There are benefits to employing a professional. They will deal with builders to make sure that they carry out the work to a specification. Thanks to their experience, you do not have to go to the site all the time nor pay unnecessary expenses. The drawback to hiring a project manager is that it is an additional expense.
In case you decide to manage the project on your own, you need to get quotes in advance. This way you can calculate your expenses. Furthermore, you must prepare yourself to live on site.
Undoubtedly, renovating a property is a stressful and time-consume process. For all you know, you will not have completed the work even after five years. Before you commit, you need to set a realistic timeframe. Remember to seek advice from tradespeople. Moreover, you should leave some room for unforeseeable issues. It is ideal to think about time off as well. Perhaps a week or two. You will need a break from all the work and stress.
Steps to Take Before Buying a Rundown House
Before you purchase a fixer upper, make sure to do the following:
Choose the Full Survey Option
Even though you are working on a budget, you should not cut costs on the survey. If you go for a cheaper homebuyer’s report, then it may not discover all the structural problems of the property.
Therefore, you must spend the money and go for a full Building Survey. This goes especially for older properties, which usually have dampness or structural issues. You must understand that these are major problems which can require thousand of pounds to fix. Whereas the cost of a survey starts at approximately £600. A Building Survey includes thoroughly inspecting the electrical system. Also, it can locate invasive weeds if any. As a result, a survey will cover all the problems possible, even the ones you did not consider.
Make Sure to Bargain
By conducting a survey, you have a good place to start to investigate the necessary repairs. This way, you can plan out a budget. After figuring out the costs of the repairs, you can then bargain with the seller. Negotiating is an important skill to have in this regard.
To work out the expenditures of the repairs, you can research tradespeople in the area. You can calculate the average cost by getting three quotes for the cost of the work. When you negotiate with the seller, you can show them your calculations. Therefore, you should consider this before buying a rundown house.
Improve Your Skills
When looking for tutorials, you can find what you are searching for on YouTube. Everything is there, including property renovation. So why not go for it? Or you can try courses on various subjects. For example, painting, gardening, or even tiling. You can save a lot of money by doing all these tasks yourself. Which you can then use for jobs that you cannot do, such as plumbing or electrical work.
Have a Plan B in Place
When it comes to building projects, half of them tend to go over budget. You should remain realistic about spending. Make sure you know what to prioritise in case costs spiral out of control. Structural improvements are necessary. However, you must consider if you can manage with the dated bathroom and galley kitchen. You only need to live with it until you have the funds to move forward with the next phase. Suppose your answer is yes, you can live with it. After all, it is temporary. Then, once you get the equity from your property, you can use it to fund the new bathroom or kitchen. Mind you, this can take a few years. You should bear this in mind when buying a rundown house.
You need money, time, and patience to tackle a property that requires renovation. All these efforts are worth it at the end. Regardless of whether you are building your dream house or using it as a financial investment.
Nevertheless, if it is a project that needs large time scales and budget management, you should consider the pros and cons.
Pros and Cons of Buying a Rundown House
If you are the one who has complete control over a property’s renovation, then you decide its design. Your choice is all that matters when it comes to the layout and colour scheme. The quality of the finish is also all yours to control.
On the other hand, it is difficult to find what you want in a house that is already renovation. Not to mention the challenge of finding the right size, location, and amenities. Although there are plenty of properties that people are glad to move into right away, purchasing a fixer upper allows you to create your dream home.
Let’s look at the advantages and disadvantages of a property that requires renovation.
Advantages of a Fixer Upper
You can benefit from the following when purchasing a rundown property:
Low Initial Cost
A major reason people are interested in buying a rundown house is that they can do so at a lower initial cost. If the renovation is not too expensive, then you have got yourself a great deal right there. You can negotiate the asking price and find yourself the right home to repair. At the end of the day, it is all about how you are going to manage the costs of repairs and balance them out. If you cannot stick to a budget, then perhaps a fixer upper is not the right choice for you.
Create Your Dream Home
As compared to a renovated property, a fixer upper is going to cost you less. In most places, you will see that extended properties and completed homes have a higher asking price.
You can make a financially wise decision by purchasing an unmodernised property and renovating it. Although, this depends on the condition of the property and its asking price. With the right choices, you can bring the property’s value up to the level of other modernised properties in that area. As a result, you spend the same amount, yet you can get the home of your dreams. It is in your hands to design it any which way you want.
You can Add Value
By renovating a property, you can bring it up to date. This will add value immediately. For example, a new bathroom or kitchen. Most buyers focus on these aspects when viewing properties.
Suppose you spend around £10,000 replacing an outdated kitchen. By installing this new kitchen, you add £20-30,000 to the value of the property. The same applies to roof extensions. You will need to spend around £30-40,000 on an average loft conversion. However, in certain areas, the value of an extra bedroom is up to £100,000.
Disadvantages of a Fixer Upper
However, you should consider the following drawbacks when buying a rundown house:
Possibility of Going Over Budget
When you begin to renovate a property, it is likely that you will spend money on issues you did not consider. For example, re-plastering crumbling walls that were behind old wallpaper or damp-proofing.
In case you are working with a tight budget, you may have to stop the works if you encounter problems. As a result, you may end up paying more. Especially if you are living in a rented a place for the duration of the project. Or if you need to pay the mortgage.
Surely, if you want high-quality fixtures and fittings, you can stretch the budget. Or even if you want a better finish. However, you must remember that it is difficult to stick to a budget. Therefore, you must know your priorities and remain cautious of overspending when buying a rundown house.
The Risk of Not Adding Real Value to Property
Suppose you end up spending £150,000 to renovate your property. That does not necessarily mean that it increased the property’s value by £150,000. Hence, you should know when it is not necessary to spend.
In some cases, owners spend a lot of money to renovate their homes. However, the final value of the property exhibits the demand for the area only. There are times when you must accept that you are certain repairs are more of a personal choice rather than an increase in value. For example, getting an expensive kitchen.
You should find a balance between what the demand is and what people are willing to spend on the property. There is always a ceiling in these situations. Nevertheless, by working with a reasonable budget, you can get a return on what you spent. In fact, you can get more than that.
Plenty of tradespeople will claim that they can do the job efficiently. Unfortunately, that is not the case at all. You may find it challenging to come across a person who is trustworthy enough to renovate your property. Remember, it is essential to reach out to the right person as it can either make or break your renovation project.
It is best to listen to recommendations from family and even friends. You should not go for the cheapest option available simply to save money. The cheapest option being highly recommended is another story.
If you are not managing the work yourself, then it is essential that you use a trusted project manager. Especially if you are dealing with an extensive renovation project. You will end up behind schedule and out of pocket because of poor organisation. Therefore, it requires coordination and planning to carry out such works when buying a rundown house.
|Lower purchase price||Going over budget|
|Add value||Risk of not adding real value|
|Create dream home||Non-trustworthy tradespeople|
To conclude, there are a lot of factors to consider before purchasing a home that needs renovation. Make sure you get a full building survey done so that you know about all the issues. Furthermore, you should set a realistic budget and timeframe for the works. Remember, it is best to hire a project manager. There are plenty of benefits to buying a fixer upper. However, you should keep in mind the drawbacks as well.