Buying A Fixer Upper – Do You Have The Right Mindset?

Buying A Fixer Upper – Do You Have The Right Mindset?

Home renovations can run the gamut when it comes to the type of work involved, as well as the time and money needed. Some renovations can be completed in a matter of weeks at a nominal cost, while others can take months or more and carry a hefty price tag.

Certainly, the end result of a renovation is a home that you can thoroughly enjoy. However, if you bite off more than you can chew, you may find yourself saying, in the immortal words of Walter Fielding, Jr. (Tom Hanks’ character in The Money Pit), “Ahh, home crap home!”

If you’re thinking about buying a fixer upper, make sure you have the right mindset for what you’re about to take on. First and foremost, expect the renovations to take longer than anticipated. Not convinced? Ask any homeowner who has gone through the ordeal of a renovation. He or she will tell you that delays and problems are bound to occur. What was expected to take three months drags out to six because you get bumped on the contractor’s schedule, the work required is more involved than originally thought, or some other unknown factor rears its head.

Expecting delays is just one aspect of having the right mindset for taking on a renovation. Dealing with constant dust and debris, managing workers (or yourself) and continually tracking and adjusting your finances are all certain to exercise your mental as well as physical muscles. And, if you plan on doing most of the work yourself, you’ll need to be sure that you actually possess the requisite skills. Also, ask yourself whether you’re ready to give up your nights and weekends for an indefinite period of time.

Of course, you may not be the only one signing up for this undertaking. Talk to your spouse or significant other (if you have one) about the issues involved in renovating. If both of you are equally willing and eager, it doesn’t mean that problems won’t occur, but it will make dealing with them much easier. Once you commit to renovating, you need to determine who will tackle the work. You can roll up your sleeves and do it yourself (if you have the know-how) or you can bring in the hired guns (also known as “contractors”).

Doing the work yourself.

Before you don your hardhat and start calling yourself the next Bob Vila, make sure you have the skill and time to do most of the renovations on your own. If so, you can save, on average, two-thirds of the total cost since you’ll be paying mostly for materials and not labor. From a budget perspective, doing it yourself certainly looks good. But don’t forget to factor in your time. You may be talking years of effort. Still, for some, the time and effort is well worth it and may even offer a creative outlet.

Hiring contractors.

You have got two choices when working with contractors: to deal with each one individually or to hire a general contractor who handles everything for you, including hiring subcontractors. Either way, be sure to follow these simple steps in selecting a contractor:

-Make certain the contractor is appropriately licensed in your state.
Most states have a registered home improvement contractor database where you can not only look this up, but check whether any complaints have been filed against the contractor. Visit your state’s website and search under “contractor licensing.” Also check with the Better Business Bureau for complaints (search the Internet under “Better Business Bureau [your state]”).

-Ensure that the contractor has adequate liability insurance and workers’ compensation insurance.
You can usually find this out when confirming the contractor’s licensing status. Another approach is to ask the contractor to show you a copy of his or her current insurance policy or to provide you with the policy number and insurer for you to confirm.

-Ask the contractor for a written list of his or her three most recent projects.
Call the owners and ask about the performance of the contractor and their satisfaction with the end result. For example, did workers clean up each day before leaving, or was the worksite and surrounding area left in disarray? Did the quality of workmanship meet the owner’s expectations? Did the contractor complete the work on time? Did any unexpected problems arise, and if so how did the contractor deal with them?

-Negotiate and sign a written contract with the contractor you’ve selected.
The contract should cover important topics such as the scope of work to be done, the timeline, and the costs. The contract should also mention that you authorize the contractor to act as your agent in applying for the building permit. Such written contracts aren’t legally required, but can save you from misunderstandings and legal disputes down the road. Also, it’s always a good idea to solicit and compare estimates from several contracts before selecting one.

Keeping track of costs.

Once work actually begins on your place, make certain that you keep track of your costs. Otherwise, your budget could easily spiral out of control.An extra $50 here, another $75 there. At first, it might not seem like much, but watch out, those extra costs add up. Maybe you decide at the last minute to go with a higher-quality carpet, or the plumber charges an additional hour because a leaking pipe was hard to access. Whatever the reason, something unexpected always hits you. And unless you’re keeping tabs on your costs, you’ll end up scratching your head as to why you’ve blown your budget by several hundreds or even thousands of dollars.

In addition to helping you stay within your budget, accurate record keeping comes in handy around tax time. It’ll be much easier for you or your accountant to itemize your renovation costs, many of which could be either tax deductible or depreciable. You don’t need to be an accountant to accurately track costs and stay on top of your budget. You do, however, need to be somewhat organized and diligent about keeping records. If those qualities just aren’t in your genetic makeup, then consider asking your spouse, family member, or friend to play the role of bookkeeper. Regardless of who does it, keeping accurate records is a relatively easy task to handle. The key is to record costs as you incur them, rather than trying to figure them out months later by digging through a heap of receipts.

No doubt, the end result of a home renovation can mean having a place that you can enjoy for years to come, not to mention the positive impact it will have on your home’s resale value. However, before you dive headfirst into a second-home renovation, give some serious thought to what you’re about to take on and make sure that you’re committed to seeing it through to the end. Above all, count your pennies along the way to ensure that you budget stays in check.