I must admit that over the Thanksgiving holiday, I watched a few episodes of the HGTV show Fixer-Upper. The premise of the show is that the husband and wife contractor and Realtor team help their clients purchase and renovate “the worst homes in the best neighborhoods.” Like all HGTV shows, there’s always a little built-in drama (unexpected repair costs seem to be a reoccurring theme) however in the span of 30 minutes (or about 30 days in real life), they turn a home that was less than desirable to one that is more modern and often built-in equity.
So – it is possible to do it in Charlotte? Do you need to have a lot of money or skill to pull this off?
Yes – Charlotte has a number of homes that would make great candidates for someone looking to take on a fixer-upper themselves. Here are the steps to finding a good candidate.
1. Start in Older Neighborhoods
The key to finding a home that can be improved quickly is to find a neighborhood that has values on the rise and homes at various price points. This tends to be a neighborhood with older homes where other homeowners have already improved and resold other homes at higher prices. Neighborhoods to consider include Montclaire, Madison Park, Lansdowne, Beverly Woods, NoDa, Midwood, Wesley Heights, Elizabeth, Chantilly, Cotswold, Sherwood Forest, Sedgefield, Dilworth, Myers Park and Starmount (just to name a few – there are COUNTLESS others depending on the part of town you’d like to live in and budget).
Consider Foreclosures and Short Sales?
If you want a good deal, you should buy a bank-owned foreclosed home or a short sale, right? While bank owned homes and short sales can be had occasionally at a discount, they usually come with a high cost of deferred maintenance. Long before the former owner stopped paying the mortgage, they stopped taking care of the basic maintenance items on their home like fixing a leaky roof, dealing with rotted wood, etc. As a result, some foreclosures and short sales can carry a high renovation cost due to unforeseen expenses. Invest in a thorough inspection of any property that you are intending to purchase.
2. Finding an Ideal Renovation Home
The ideal home is one that may be cosmetically outdated but meticulously maintained otherwise. Also, you will want to see that there are sufficient sales in the last 6-12 months of renovated properties to justify the cost. The ideal fixer-upper could be an original owner selling after many years of ownership or just a home that has good bones to be made great. Depending on your overall budget, try to find a home that isn’t functionally obsolete (having only 1.5 baths instead of 2 full or lacking a laundry area) and then start from there. It’s much more cost efficient to work inside of the home’s existing footprint than to expand the home outward if you’re working on a smaller budget. For a larger budget ($75 – $150k+), enlist the help of a structural engineer if your plans include expanding the building footprint up and or out.
Negotiating the right price to purchase is key as the ceiling to your project will be either your monthly mortgage budget or the sales in the neighborhood. To increase the margin for improvement, negotiating a lower price is critical. Any experienced real estate investor will tell you that their money is made at the time of purchase, not when the home finally resells.
3. Get a Renovation Mortgage & Contractor
Renovation mortgages have been around for decades and are the most under-utilitzed products available in the market. A renovation mortgage will allow you to acquire the property and borrow the money for the improvements that will be made to the property.
FHA 203K – This product is designed for homes that will become owner occupied after the work is completed. The maximum mortgage amount is $271,050 so the home price and the improvements would have to fall under that limit. For example, if the home purchase price was $230,000, the maximum amount remaining for repairs would be $41,050 (assuming that values in the neighborhood allowed that). With the FHA 203k mortgage, a general contractor must oversee the work to ensure that the work the lender is paying for / lending on is being completed. Self-help (i.e. the bank pays you to do the work yourself) is not allowed and depending on a size of the project, a HUD consultant may be required to weigh in as well.
Fannie Mae HomeStyle Renovation Mortgage – The Homestyle mortgage is very similar to the FHA 203K mortgage. The maximum mortgage amount is $417,000 and the cost of the repairs cannot exceed 50% of the “as-completed value”. For example, let’s say that you found a home that a builder was unable to finish for $175,000 and the maximum value in the neighborhood for that home is $390,000. With Homestyle, the maximum you could borrow would be $195,000 since that’s 50% of the as completed value; bringing the total mortgage amount to $370,000. Since it is a conventional mortgage product, it is a little more forgiving with the allowable repairs so a home with structural damage is acceptable – provided of course that the damage is remedied in the repairs.
If you are considering a project that will exceed $417,000, local lenders like Bank of North Carolina offer mortgage products that can be tailored to suit your needs. Contact our team for a referral to a lender that can meet your needs.
With any renovation mortgage, it’s wise to plan on about 45-60 days for a closing instead of a standard 21-45 for a normal purchase contract.
Along with finding and obtaining financing, the contractor that will be completing the work is essential to the project. The lender will not mandate which contractor to use but will require that one is licensed, insured, provide references, and an itemized bid of the work required.
4. Get Closed and Get Started
Once closing is completed, the work can begin. The draws to the contractor for material purchase will not be made available until closing so keep that in mind when you’re choosing your materials. Exotic materials or custom items like cabinetry can be a nice touch to your renovation but delays in manufacturing can grind your renovation project to a halt. Make sure that you’re working with your contractor to ensure that the materials are ordered on time and are set for delivery to not cause unexpected delays.
As construction gets underway, expect that you will have at least one unexpected issue arise, especially when you start opening walls or removing walls. Despite any delays or hassle, the end result will be something that you will be impressed with.
Ready to get started? Contact our team at 704-918-1815 to schedule a consultation today.