8 things to consider before buying a property to renovate, according to a realtor
- A few weeks ago, my partner and I went on an open house bike tour of a historic neighborhood in Baltimore and were introduced to a new concept: "Grandma's house."
- This has nothing to do with our own grandparents - according to the realtor who led the tour, a Grandma's house sits at a middle price point on the spectrum of fixer-uppers, somewhere between a move-in ready flip and a major renovation. While it needs work, most of that work is cosmetic.
- Like with any property that needs renovation, said the agent, it's important to consider things like whether the place was ever vacant, whether the timing is right, and how much renovation you'd really want to do before signing on to renovate a Grandma's house or anywhere else.
- Visit Business Insider's homepage for more stories.
A few weeks ago, my partner and I went on an open house bike tour of a historic neighborhood in Baltimore.
The objective of the tour was to give buyers an idea of the market, plus to showcase homes in a friendly, suburban neighborhood that is up-and-coming. Even though we're not ready to buy yet, we've begun researching the market in more affordable areas while we discuss what we'd want if we choose to buy in Baltimore one day.We were surprised when Keller Williams real estate agent Marc Hagerthey insisted that we ought to consider buying a "Grandma's house." And we were even more surprised that we were excited by the idea.
Just what is a Grandma's house, exactly? Imagine an older home with good bones that is only in need of cosmetic updates. It might have a Pepto-pink bathtub, but, as Hagerthey says - Grandma took care of what matters.
A Grandma's house sits at a middle price point on the spectrum of fixer-uppers, somewhere between a move-in ready flip and a major renovation. The nice thing about buying a Grandma's house is that, often, this kind of historic home has never gone unoccupied or fallen into disrepair. Though it might need some updates, a good Grandma's house will be structurally sound and well-maintained.
In certain real estate markets, says Hagerthey, there is low inventory when it comes to move-in-ready historic homes. A Grandma's house offers a solution and might help buyers get a "deal" they may not normally get in a more competitive market.
How much would it cost you to buy a home? Find out with these offers from our partners:
This is especially helpful in Baltimore, where I live. A lot of buyers in this area are interested in homes with historic charm. People love original hardwood floors, stained glass windows, vintage subway tile, exposed brick, and wood doors with period hardware such as brass and glass door knobs. But, along with historic charm comes the need for modern upgrades, including recessed lighting, replacement windows, central air conditioning or ductless systems, new kitchen appliances, and remodeled bathrooms.
8 things to consider before buying a property to renovateAccording to Hagherty, here are the basic "bottom lines" a buyer should consider when considering buying Grandma's house, or any renovation property:
Ask if the property was ever vacant
If so, make sure it did not fall into disrepair. If you're lucky enough to find a Grandma's house, it was probably never unoccupied but rather lightly used in recent years, and likely in great shape where it matters.
Look past the surface
A lot of historic properties marketed as renovated were actually bank-owned and may have been vacant for years. Certain upgrades give the appearance of quality, like stainless steel appliances and granite counter tops, but may have been done in haste while other, more important, issues like electrical wires, the roof, and HVAC were neglected.
Inspect the bones
The most fundamental (and often most costly) renovations will include roof/gutter replacement, windows, and HVAC replacement. In most cases, these are the kinds of issues that will cause your offer to fall through during your inspection, so it's best to weed out these homes at the get-go.
Brave the scary basements
Nothing can mess up a house faster than a water issue, so look for water in the basement and, if necessary, either pass on the property or budget for a drainage system.
Keep future renovations in mind
If you know you ultimately want an open layout, have your contractor do wall demolition before you even move in.
Consider your ROI
Some renovations, like a finished basement, are not always going to increase your resale value as much as you paid for them. Others, like adding a bathroom or half bath on the main level, will.
Depending on your scope of work, it may take a contractor 30 to 90 days to complete a renovation. Having a flexible living arrangement or being able to go month to month with your landlord is paramount while the renovation is being done.
Find the right person for the jobHagherty recommends interviewing and getting quotes from at least three to five licensed contractors.
Why go through the trouble of renovating?
A couple of years ago, Hagherty found a buyer the perfect "Grandma's house" that had been on the market for about 90 days. Most buyers were not able to look past the original kitchen, rooster wallpaper, and Elvis clock. But this particular buyer was interested in gaining equity through renovations. The home was a brick duplex they got under contract for $120,000, while a comparable brick duplex with all the bells and whistles had recently sold in the neighborhood for $220,000.
The buyer saved $100,000 on the initial purchase, yet it only took $60,000 in renovations to make both properties equal in market value. The buyer made $40,000 in equity that he would not have had access to if he had simply bought a move-in-ready home.
This example shows how a Grandma's house is often priced too high for an investor or developer to make a significant profit, but low enough for an average buyer to gain some considerable equity if they manage the renovation properly.
In other words, if you factor a renovation into your mortgage and use enough patience, vision, and elbow grease - you could see a nice return on your investment, plus a few inherited trinkets (like the Elvis clock) along the way!
Personal Finance Insider offers tools and calculators to help you make smart decisions with your money. We do not give investment advice or encourage you to buy or sell stocks or other financial products. What you decide to do with your money is up to you. If you take action based on one of the recommendations listed in the calculator, we get a small share of the revenue from our commerce partners.