Today’s real estate market may cause you to wonder about purchasing a rehab property, sometimes known as a “fixer-upper” for your next home purchase.
Rehab properties are properties that are known to need repairs or renovations. Purchasing a rehab property and fixing it up can be costly, extremely time-consuming and complicated. However, a rehab property is often an excellent chance to purchase real estate at a highly discounted price.
The repairs in a rehab property can range from minor alterations to major changes. Examples of minor changes include replacing doors, flooring or appliances, while major changes might be replacing an entire electrical system or repairing a foundation.
Here are some of the steps to take if you are considering purchasing a rehab property in New York.
Home inspection
An inspection is an important step in any real estate purchase, but this step is even more critical for a rehab property.
Thoroughly review the results of the inspection report. The report will tell you exactly what repairs are needed in your rehab property and help you decide if the project is worth your time and money.
If you decide to go forward with the project, prepare an estimate of the total cost of renovations and prepare a detailed budget. It may help to have an overall budget for the entire project and separate budgets for each piece of renovation.
Permits
Research permits. Certain renovations require permits. Add the costs of any required permits into your budget.
Renovating a home without the proper permits can cost you. You will likely face fines or penalties for not having the required permits and you may be required to redo the renovations all over again. Selling the home in the future might be difficult without proper permits.
Determine which projects you can do yourself and which ones are better left to professionals. Many people purchase rehab properties because they like the idea of performing the work themselves.
However, depending on the renovation, it could be better to hire a contractor to perform the work. Major projects that require specific expertise are better left to professionals.
Speak with several different contractors and obtain several bids and time estimates. Remember to add the cost of any contracting work to your budget.
Prepare for the unexpected
Include room in your budget for unexpected events or delays. While there is no set number, it is generally recommended that you add an extra 20% into your budget.
Be prepared to use this extra 20%. Supply-chain issues or other unforeseen events mean your project may cost more or take longer than you think.
Have the right financing ready. There are several types of loans available tailored for people purchasing rehab property. These loans combine the home purchase and remodeling costs into one mortgage. Research your options to find the best one for you.
There are pros and cons to purchasing a rehab property. Lower prices and more control over the property are some of the advantages, while unexpected costs and the time involved are common disadvantages.
Having an experienced real estate attorney by your side can help ensure your deal to purchase property as a rehab opportunity goes as smoothly as possible.