Purchasing property in New York City is a huge decision, especially when you factor in choosing between a fixer-upper and a move-in ready or new-construction home. If you’ve been considering a fixer-upper — which typically means a 1–4 unit property, condo, co-op or brownstone that’s in need of some TLC — here are the top concerns you need to be aware of before taking the plunge.
Have a plan in mind
The first step to figuring out if a particular fixer-upper is a good fit is to come up with a clear vision of how you would like to improve the property. This will make it much easier to decide which questions you need to ask in order to determine if the home is worth buying. Plus, if you do move forward, it will help you put a framework in place for the renovations.
Ideally, you’ll come up with these plans as you view the properties during your showings. That said, keep in mind that not all renovations are created equal. Your plan for one property may involve making smaller cosmetic updates while your plan for another could include doing a gut renovation.
While you’ll ultimately have to decide how big of a renovation you’re willing to undertake, it’s best to look at every showing as a clean slate. Think of your plan for each property as being independent from the others. Then be honest with yourself about whether or not you’re capable of handling the scope of those intended renovations.
Ask about building restrictions on renovations
The next thing to do is determine if your vision is feasible. In New York, that usually means verifying whether the building allows your intended renovations. Keep in mind that each condo and co-op board has its own set of rules and regulations. There’s a chance that you may need to receive approval from the board before making any improvements or that it may not allow certain renovations to be done at all. Be sure to ask what’s permitted and how the process works before you submit an offer.
If you’re in the market for a freestanding home, you may not have a condo or co-op board to contend with, but that doesn’t mean you’re entirely free of regulations. In that case, your task will be to figure out which permits are required to do the work and how that process functions. To do this, you should visit your Department of Buildings (DOB) Borough Office.
Do some financial research and interview experts
Now it’s time to take a closer look at how much work your renovations will entail and what they will cost. We recommend reaching out to an experienced contractor and architect for help. Be sure to search out professionals who have completed similar projects before. Then, once you have a few in mind, do your due diligence by viewing their past projects and asking for reviews from previous clients.
In addition to getting expert opinions, it’s important to do your own research. You’ll want to think like an investor and take a look at the potential return on investment (ROI) for the property. As a guide, we suggest following the one percent rule, which states that a property should have the ability to rent for 1% (or more) of its total upfront cost in order to be considered a smart buy.
After accounting for the cost of buying the property, you’ll need to budget for any renovations you intend to undertake. There is a little more latitude with what you can expect to spend, depending on how upscale you’d like the final product to be. For example, according to Remodeling’s 2019 Cost vs. Value Report, a bathroom remodel with midrange features will run you $20,420, on average. With luxury features, that figure can go up to $64,743.
Finally, the best thing you can do to prepare yourself to tackle a fixer-upper is to prepare for the unexpected. This is key when it comes to putting together both your budget and your schedule. Financially, you’ll want to leave at least a 10% cushion in your budget for overages. Time-wise, you’ll want to add a few extra days to account for waiting on permits and final approvals in addition to the time it takes to complete the work.
Get your finances in order
Once you decide that the property you have in mind is a sound investment, the final step before submitting an offer is to get your finances in order. In this case, when you meet with your lender to get a preapproval or prequalification, you should let them know that you’re specifically interested in getting an All-in-One Construction Loan.
As the name suggests, All-in-One Construction Loans make improving a property much easier because they allow you to roll the cost of the renovations into the amount you’re borrowing in a mortgage. However, in exchange for the added financing, these loans often come with their own set of qualifying standards and interest rates.
Assemble a qualified team
All told, buying a fixer-upper can be very rewarding, provided you’re ready to undertake the task. If you’re unsure about taking the plunge, review the aforementioned steps to buying a fixer-upper in New York.
At First Republic Bank, we specialize in unique financing opportunities and work closely with real estate professionals and their clients to help them understand their renovation loan options. Learn more here or speak to a First Republic banker today.