THE FIRST TIME HOME BUYER/RENOVATOR © Wayne D. Lewis, Sr.

5 THINGS TO BE AWARE OF WHEN YOUR FIRST HOME IS A RENOVATION PROJECT

You have decided to buy your first home, and… you have decided to put your special touches on it.  Congratulations!  But, unless you have the necessary experience in conducting renovations, or supervising contractors, you will need to be aware some very important things B-4 you decide to take on a very serious, and hopefully, avoidably, financially impairing project.  Here are a 5 things to be aware of:

1.  Buying verses Repairs-It is important to know how much you are willing and able to spend.  Whether financing the project, or coming out of pocket, knowing your financial limitations is key.  If, for example, the most you have to spend on a house and repairs is $150,000, it would be important to know the condition of the property before buying it;
2.  Inspections/Estimates-   The most unassuming property may hold more challenges than you can imagine.  Taking the time to inspect a home before buying it will save a tremendous amount of money.  For example, a house valued at $75,000 may leave another $75,000 for repairs, additions and adding decorative ideas.  If of the $75,000, you may have set aside, 20% for repairs, or $15,000, will that be enough if an inspection reveals pluming problems and/or foundation problems?   While either of these maybe addressed within the initial $15,000, was that 20% supposed to also include a new roof, or electrical?  If so, then, that 20% may have to be adjusted to maybe 35%, or $26,500.  It will be important to get several estimates for the necessary work to be done, so as to minimize how much the “must do’s” affect the “want-to-do’s”; 
3. Contractors (family, friends, professionals)-While family and friends maybe professional contractors, Professional Contractors may not always be family and friends.  Please note the difference how each, if not properly insured, or supervised, may cost the first-time home buyer in taking on a first-time renovation project. As you make a decision on how much to spend on repairs and those things that you may want to do the property, you will also want to take into account, who is going to do the work?  Contractors are not in short supply.  They are like Real Estate Agents (no Offense) and Lawyers (no offense).  But the best of the best will be depend on how much you can afford.  Affordability in this instance applies not just to how much they will charge, but also how properly licensed and insured they are.  As a first-time home buyer, you can’t afford to have just anyone doing work on your home who is not properly covered against liability, or workers’ compensation.  A failure to exercise reasonable care when contracting someone to work on your new home cannot be budgeted for, because the amount of liability that begins to grow, may exceed what you may have purchased the home for, as well as what you may have set aside for repairs and updates.  It is suggested that you use the Better Business Bureau and/or (in the State of Louisiana) the Contractor’s Licensing Board, even for Family and Friends;
4. Financing-if you have not met with a lender, you may not be aware of the types of loans that you could apply for that allows you to purchase a home and finance the repairs and upgrades.  There are several loan products, but for now, let us briefly talk about the FHA203K loan (See your lender for further details).  This loan allows a purchaser to buy and repair the home as long as one main condition is met:  the purchaser must agree to live in the home for a certain amount of time (certain conditions may apply).  The important thing to remember is that this process helps the purchaser to fine-tune the purchasing of the home through a structured process that involves an appraisal, an FHA Home Inspection and the opportunity, if necessary, to finance part of the loan without coming out of pocket (your lender can explain).  This and other loan products are available through select lenders, certified in FHA203K loans, please check with your lender first.
5. Insurance-Knowing the right type of insurance for your home is extremely important.  Consult with your insurance provider as you ask them about one of their products called Builder’s Risk.  This particular product is available when a house is not quite ready to be moved into, or is vacant.  It covers the homeowner during renovations, and particularly, while contractors are doing very important work to restore your home.  After the renovations are through, you should already be aware of the cost of homeowner’s insurance and flood insurance.  These are usually required by lenders when a property is being financed.  NOTE:  even if your lender does not require Flood Insurance, or your home is located in a non-flood zone, please be advised of the importance of maintaining adequate flood insurance in the southern portion of Louisiana and along the Gulf Coast.
6. BONUS-Who is watching your stuff? The first thing that jumps out at me as Realtor, is the fact that when a first-time home buyer is looking at a property that is obviously in disrepair, and they want to take that property on as a project.  God Bless’em!  I automatically switch to protective mode on their behalf.  I often ask: “Who are you going to get to do the work?  Will the person(s) be someone you can trust?  Most of the time it is a family member whom they will be getting to do the work, and at the point, I am at ease.  But for those who have yet to encounter what it is like to work with contractors, especially as a first-time home buyer, and you are working your 9-5, or you are out of town a lot, please have someone whom you can trust to ensure that the work you are paying for, is the work that is getting done.  This is not to cast dispersions on contractors in general, but, what if the wrong counter-top goes in?  What if the wrong paint is applied?  Who is watching out for that first time home buyer, if they are not on site?  The outcome of not being able to be hands-on can be financially impactful, even if, for example, the wrong tile is put up in the bathroom.  These types of situations happen, even among the most qualified contractors, with on-site supervision!  So it would be helpful to the first time home buyer to make sure that they are as visible as necessary to help their contractors do their best, on the buyers’ behalf. 

The above 5 areas and Bonus suggestion, are only a snapshot of what the first time home buyer/renovator should be concerned about before signing off on the final papers.  There are more things to be concerned about, but it is recommended that the first-time home buyer consult with each professional along the way.  From the proposed contractor(s), to the lenders, Inspectors, and of course, Realtors, the important thing is to leave nothing to chance when it comes to investing in a home that needs to be renovated.  The first time home buyer encounters a tremendous number of challenges already.  If they are not prepared for what renovating their new home involves, the financial repercussions may cause extensive more problems than had they chosen to purchase a move-in ready home.  Good luck on the purchase of your new home, and as always: Make Your Best Offer!

SPEAKER: If interested in having Wayne Lewis speak before your community group, please email him at waynelewissoldit@yahoo.com

 

DISCLAIMER: ALL INFORMATION PROVIDED IS DEEMED TO BE FROM RELIABLE SOURCES, BUT NOT GUARANTEED.  NOT AN INTENT TO SOLICIT THE AGENTS CUSTOMERS OR BUSINESS OF ANY OTHER AGENT OR BROKER.