I know some first time home buyers who don't have a very large budget. They're trying to decide what would save them more money in the long run: taking out a slightly bigger loan for a newer house in good condition, or buying an older home that's cheaper but needs some repairs. What advice would you give them? What are some of the most costly repairs they should be trying to avoid when they look at older houses?
A:
When first time buyers are getting into the housing market they must look at their first home as an investment. The goal is to take that house and after 5 to 8 years sell it for a profit to buy another house that is worth more or has allowed them to shrink their mortgage going forward.
With your first home being an investment that you will part with in the future I always recommend buying the older cheaper home on condition that it has what we call “GOOD BONES”.
A newer house is more attractive to first time homebuyers because it comes with fewer headaches, less unknowns and less repairs to do in the immediate future. But it comes with a larger mortgage and since the house is newer when you do go to sell the house in 5 to 8 years the odds are that a lot of the house will be out of date and will need some form of remodeling or updating to maximize the value of the resale.
The value of the cheaper older home is in the fact that it is being sold with the realization that it will need to be fixed now and in the future. That means that in the purchase price of the home is built in the discount for some or all of what needs to be done to the home. Since your first home should be sold 5 to 8 years after you buy it then all the repairs and updating you have done to it are current and will only help maximize the resale price.
Saying all that, it doesn’t mean that you can go out and buy any old house on the market and turn it into large profits a couple of years down the road. I mentioned that the older home has to have “good bones”. Let me explain what that means;
Good bones refers to the actual structure of the home, the bones of the home refer to the following;
• Foundation. The foundation needs to be in good physical shape, not shifted or heavily cracked or leaning.
• Waterproofing. You need to check the basement for signs of water, check the outside of the building for any evidence of the waterproofing being compromised.
• Roofing. Check the roofing is in good shape and free of tears, worn material, moss and curled shingles.
• Roof structure. If the roof does not look straight or level like it has rolls or humps that is a sign of rot or a major structural problem.
• Septic system. Have the septic system checked to make sure that it is working properly.
• Heating system. Replacing old heating systems or having to install a modern heating system is extremely expensive.
All of these parts of houses are the bones and are essential to the home, the home will not function properly with any of them compromised. The cost to fix, repair or replace any of these parts is expensive and has to be done immediately, not allowing the homeowners to spread the cost over time.
With an older home that has good bones a lot of the remodeling can be done relativity inexpensively by the homeowner. “Elbow Grease” can add a lot of value to a home, homeowners with little to no skill in renovations can paint, strip wallpaper and apply simple flooring changes. These simple face lifts and some minor renovations by professionals can add large value for the resale of the home.
If the first time homebuyers can find that older home with good bones for the right price then I would recommend that over a newer home, especially for people looking to buy their first home.
Rob Abbott
Operations Manager
Village Builders Inc.
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