If you
play your cards right, buying a charming fixer upper to renovate can be a very profitable venture. See below for some
tips on how to stack the deck in your favor.
1.
Buy for the right price! An ideal
purchase is a truly dated property. The one most people would enter and say, “Oh
my God! This is going to take a lot of work…” or the one that has just been so distastefully decorated that the
average buyer cannot look past the atrocities. These properties are typically
priced well below market and without much interest the perfect opportunity may
present itself to snag a deal.
2.
Good Bones is a must. For a Condo or
a Co-op you are generally looking for cosmetic fixes, a new kitchen, new bath,
refinishing the floors and painting the walls. Be certain that your construction
plans are feasible, both financially and legislatively. Some buildings,
particularly co-ops, have very strict rules about wet over dry, adding a
washer/dryer in the unit and how construction should be done. Be sure to have
your attorney ask about this information prior to closing the deal. If you are
buying a townhouse, a home inspection is a must. These are typical townhouse
expenses; new roof: $10,000 - $20,000, new windows: $10,000, new plumbing:
$10,000 and new electrical: $8,000. Be cautious of any structural issues. A
little settling is normal, but heavy leans or horizontal cracks in the
foundation are a good indication the property does not have “good bones”.
3.
Add onto the building if you can. If
you are buying a townhouse, look at the Floor to Area Ratio (FAR) of the
property. This will let you know how many additional sqft you are allowed to
add on via the department of buildings. As real estate values are generally
devised from square footage, adding square footage is the surest way to
increase your property value. IE: a three unit townhome with two thousand square
feet and a purchase price of $1,440,000, or $699 per sqft. The owner does a
full scale renovation including a three story addition of 383 sqft for a cost
of $250,000. The new home is 2443 square feet, which at the pre-renovated price
per square foot would be valued at $1,707,657 and completely cover the cost of
the renovation. The new renovation price per square foot would be higher ($100
- $200 more) than it was pre-renovated, and all of that becomes pure profit. When
doing your calculations, everything that was added counts towards your FAR,
even a deck.
4.
Renovate with others in mind. If you
are planning to live in your home after renovating, think of the needs of your
family. Do not get too specific in terms of taste or layout, as you want your
space to translate well for the next buyer. Avoid this mistake: While an
oversized master suite or an open living room may be ideal for your family,
never take a three bedroom down to a two because you are cutting your resale
value immediately. Likewise, while you may love rose patterned tiles, it is better
to keep the tiles neutral and opt for rose patterned towels instead.
5.
Choose your finishes wisely. There
are certain items that make an apartment’s entry a “wow moment” and can also
make the entire unit feel very luxurious, thus upping the value. Standout items
such as kitchen appliances or high end countertops can go a long way to hiding
Ikea or other pre-fab cabinets. Another trick: Use high end hardware and
faucets to make a cheap vanity look polished and well done. Be wary of paying
for the brand name, however. While a professional grade stove may be on
everyone’s wish list, paying for Viking or Subzero may not be the only way to
go. The best finishes on the market might not significantly increase your
return so spend $300 - $500 for a moderate, beautiful piece. Finishes rapidly
increase the budget so it is important to have a few splurge items that will
really elevate the look of your home.
6.
Get the right help. If you are
renovating in New York, you will need a licensed and insured contractor, an
architect and an expeditor if there is any potential structural work. If
possible, always use a referral from someone you know. Your real estate broker
can be a valuable resource as well. Check your local websites for helpful
information. Brownstoner.com and Brickunderground.com cover everything under
the sun. Lastly, make sure to do a full internet search on everyone you hire. I
have heard horror stories from people trying to get contractors and
subcontractors to show up, only to find they are wanted in New Jersey for
defrauding customers!
7.
If the project is DIY (Do It
Yourself), make sure to have plenty of time and patience to get the job done.
Generally speaking, it is best to leave the work to the professionals because
you never know what you are going to find. The potential to further damage your
home is not worth the risk. Alternatively, you can build your own Ikea
furniture or cabinets and/or paint the walls to satisfy your DIY yearnings.
8.
If you have any kind of structural work
or additions taking place in your home, the approval of the Department of
Buildings will be needed prior to any permits being issued and any work being
done. In this case, the architect and expeditor are the ones who will handle
everything with the Department of Buildings. Therefore, the architect and his
expediter are the two most important individuals on your team. Anticipating,
deciphering and fulfilling the needs of the DOB is a true art form and if you
have someone who knows how to do this properly it can save you time,
aggravation and money. Be sure you feel comfortable with your selections here
and know that what the DOB says - goes. The renovation process could take
months so expect changes, additions and several rejections prior to approval.
9.
When all is said and done,
renovating is really worth it. Finding a well valued property and doing the renovation
work can lead to a large return on investment. Especially if the project is
completed logically and efficiently.
Here are
some examples of real New Yorker's who have been there, done that and are
smiling all the way to the bank!
749 Union Street, Apt 1L
Purchased for: $640,040
Sold for: $975,000
Approximate Renovation Cost: $75,000
Approximate Profit: $259,960
198 11th Street (Townhouse)
Purchased for: $1,440,000
Estimated Market Value: $2,100,000
Approximate Renovation Coast: $300,000
Approximate Profit:
$360,000
