Mistakes When Buying Real Estate

When you are looking at a home to buy in the type of real estate market that is today, (a market where there isn't a lot of homes for sale and the price of those homes has risen with the market demand) don't start projecting your dream home on to it.

What do I mean by "projecting your dream home" on a resale home? It means that you look at a home and you start envisioning all the renovations that you would do to it to make it your own.

Now this is a common practice with home buyers, to envision what a home could look like with some changes, but what starts to happen in a tight market (with limited homes for sale) is people start changing everything about the house.

Recently I have been asked for prices from people that wanted to buy homes that wanted me to give them a budget price on renovation work on older homes in the area. The problem is that its not just renovation work that people want they also want to add square footage so the budget price includes an addition. Additions are far and away a lot more money then most of the renovations that are asked for by the potential buyers.
In the end the budget ends up being almost as much as some of the houses that are for sale. These budgets run well into the hundreds of thousands and it ends up throwing a monkey wrench into the deal.

When you are looking to buy a home and you ask a contractor to work up a budget for you be careful what you tell them. If you tell them an endless stream of changes that you want to the house because that is what your dream is then they (the contractor) will work out the cost based on what you have asked for and that can end up being a lot of money all at once.

What you should be doing is putting them into 3 categories;

1. Immediate repairs. These are things that need to be fixed before you can move in or fairly quickly after you move in, these would be leaky roofs, leaky foundations, broken furnaces, broken windows, etc.
2. Updates and making the home functional. People are pretty resilient, they will adapt to pretty much anything but it doesn't make life easier or more functional. These things are new room layouts, moving the laundry room, new kitchen, new plumbing, new electrical, new bathrooms, updating insulation, refinishing floors, painting. Houses should be updated and renovated every 15 to 20 years, that's not just for resale but also because everything wears out and will need to be replaced. So unless you bought a house that had just been renovated then you have to figure on renovating the major areas in the house within so many years of moving in. 
3. Long term Plans. These are plans that will cost a lot more money then you are willing to spend, these plans can change overtime with your life. Examples of this are adding more square footage to the home (an addition). Or building a garage or carport on the property, also demolishing part of the house to rebuild it is a longer term plan. These big ticket items should always be considered part of the longer term, it allows you to save money and properly design something so that you get the most bang for your buck when you fully commit. Additions can a lot of times be added to your home while you still live there, to a certain extent.

If you were to take the rather large budget that you were given by your contractor about the house you want to buy and break it down into those three categories then you can see if spreading out the spending overtime makes sense when buying the home. After decades of spending money on it will you get your money out of it at the end when you sell it? Does spreading the money around for years mean that you can actually afford to spend that money? Do you want to spend that much money over a longer period of time or do you want to spend your money all at once to get it over with?

Deciding on what you want to do renovation wise will help clarify if you can afford to buy the home and also if the house actually will work for you now and in the long term.

Rob
Village Builders Inc.