Shearin-Hathaway Group: Top 10 Tips for Buying a Real Estate Wreck
MANHATTAN — A handyman’s dream. An architect’s delight. Needs some TLC — these are some of the real estate euphemisms that let you know a home will need a serious renovation.
Roughly 10 percent of prospective buyers would consider a home that needs major remodeling, according to Doug Perlson, co-founder and CEO of RealDirect.com, an online brokerage that employs a search tool for wrecks.
“As home prices increase and as competition increases, the idea of a 'fixer' becomes almost a necessity for some people because the buyer pool shrinks pretty dramatically for those who want to do the work," Perlson said.
A fixer-upper might cost less than something newly renovated, but having to rehabilitate a home can turn into an expensive headache, experts say.
“It's important to understand the difference between a full renovation and cosmetic work,” said Miron Properties’ Jeff Schleider.
“Grouting, paint, new cabinets, even changing floors — that’s pretty cheap and easy. You don't need to file permits for that. But a gut renovation, where you're redoing the plumbing and electrical, that's a big deal.”
Schleider, for instance, recently listed a massive townhouse at 2064 Fifth Ave. in Harlem for $3.495 million. While a renovated house of this size would likely go for roughly $5 million, this 15 bedroom, five-floor home, filled with original details, needs at least $700,000 worth of work, he said.
“If you're willing to do the renovation yourself or have a relationship with a contractor and architect, than you can see some upside,” Schleider said. “Or, if you just want to create the place of your dreams and know exactly what you want and don't want to pay for someone's else’s renovation.”
But, he warned, “Before you buy, you should bring in three contractors, take the middle price, add 25 percent and double the amount of time."
1. A fixer-upper isn’t necessarily a bargain
As with any type of housing in this tight market, there may be bidding wars.
Sharon Cohen, of Keller Williams NYC, said that within one week of listing a $1.05 million two-family brownstone at 795 Lincoln Place in Crown Heights in need of a total rehabilitation, nearly 100 people inquired about the property — and that was during the slow time of the holidays.
Perlson said the best deals were usually the properties that have been on the market for a while.
Sometimes a seller who has high expectations for a price, will reject initial offers and then see that listing sit for several months, he said.
“They’re often more receptive to a lower bid a few months later, and that’s where the opportunity is for buyers,” he said.
2. Find a contractor you trust
Besides getting references from homeowners who have done similar types of projects, go and see projects the contractor is doing, Schleider suggested.
“Don't just go with cheapest. A lot of contractors bait [with a low estimate] and then charge for other stuff.”
3. Tour the property with a contractor before you buy
Though bidding wars might put a time crunch on decision-making, it’s still essential to walk through a home with a contractor before signing on the dotted line, said Fraser Patterson, a former contractor who is CEO of Bolster, which offers insurance on remodeling projects.
"The contractor will see details and notice potential problems that you won’t see,” Patterson said, adding that it's also an opportunity to "see if you gel" with a contractor.
4. Know a building’s rules
If you’re buying an apartment, townhouse or anything in a landmarked district there are often rules regarding what you can or can’t do.
“A condo or co-op board may put the kibosh on breaking through a wall that holds a freestanding heating or AC unit or adding a washer/dryer,” Patterson said. “And for many of them, don’t even think about putting in a second bathroom.”
Ask your real estate agent to get the building’s alteration agreements, and then review them start to finish, he advised.
"You really have to do your homework upfront," real estate attorney Steven Kirkpatrick said, "because if you don't know the legal landscape, you're going to be stuck."
A lot of co-ops and condos require renovations only be done in summer months, he said. "Now you buy your classic six apartment, but you can't finish [the project you want] over the summer, so you're either cutting back the scope of work or doing it piecemeal."
5. Make sure you have the right team
To properly approach a fixer-upper, you'll need to have a lawyer, an architect/engineer who will sign off on plans and an expeditor — someone who understands the Department of Buildings' rules and codes, Kirkpatrick said.
A good expeditor can cost between $5,000 to $10,000, Kirkpatrick noted. Sometimes people try to cut corners by skipping out on expeditors, he added, but that can pose later problems.
Case in point: an architect working on a two-family house in Flushing, which had previously been illegally converted into four apartments, didn't tell the homebuyer that the Buildings Department had issued a violation during the renovation that carried a fine of $1,000 per day. So, the owner was shocked to learn he owed the city $50,000, Kirkpatrick recounted.
6. Know your townhouse's history
If you're converting the use of a townhouse from a multi-family building to a single-family home, or vice versa, you will need a new Certificate of Occupancy from the Buildings Department, Kirkpatrick said.
If a townhouse had been a boarding house — or single-room occupancy (SRO) — even if the home is vacant, you will need a Certificate of No Harassment to move forward. In order to secure this certificate, the city investigates three years worth of the building's history to make sure there were no problems.
If there were issues related to a previous owner, your renovation can be seriously delayed.
"And if you're looking in Harlem, more than 70 percent of buildings are SROs," Kirkpatrick said.
7. Understand your project’s timeline: It will be a long haul
With a massive renovation project, you may not be able to move in until all the work is finished, Patterson said.
“If you’re planning a remodel that will change essential components of the home — like structural, plumbing or electrical — remember that you’ll need a go-ahead from the Department of Buildings before you start, which will require hiring an architect to create plans and submitting them for approval,” he said.
“Which means more time, time and time.”
Schleider agreed: “It's getting the permits that's the real time suck.”
He also suggested checking in every day on the project and getting each contractor and subcontractor to sign off on what they've done that day.
“You're deluding yourself if you think you can pay someone to do the job and just walk away," Schleider said.
8. Understand your personal timeline: Is it your “forever" home?
“What are you trying to get out of it? Is it a five-year plan?” asked Perlson, who cautioned against taking on a pricey endeavor if the digs are somewhat temporary.
“If it’s your ‘forever home,’ I will tell our clients it’s OK to renovate exactly the way you want to,” he said, but “over-renovating or renovating to a specific taste” may otherwise not be cost-effective.
9. Have a realistic budget
More likely than not, remodeling a home will cost more in the end than you budgeted for, Patterson said.
“If you didn’t have the luxury of time to plan during the buying process, then factor in another 10 percent [to the property's total cost],” he suggested. And because there may be “unforeseen hidden costs,” he advised on insuring the renovations project.
“If the added costs aren’t something you’re willing to take on right now, consider moving on to a turnkey property, or one that requires less work,” he said.
10. If you don’t have a vision, it may not be the right opportunity
It helps to have a clear vision from the get-go, Schleider advised, down to the spots on the wall for electrical outlets.
When developing a work plan, instead of saying, for example, “renovate the bathroom,” outline the specific model number of the toilet and sink and find the stores that sell the tiles you want, he expained.
“The more specific you can be in terms of finishes, the more OCD you can get on a spread sheet and on labeling, the better the process will go,” he said.