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Friday, December 26, 2014

Fixer Upper Friday: Cost of Renovations $0

Our $0 renovation
This isn't going to be a post about scouring the internet for the best deal on fixtures. Or how to find upcycled goods at salvage yards. Or even how to cut your contractor costs by doing some DIY yourself. (Though, I can readily get behind any one or all of those things.)

This is about something very real that you don't hear too much about in the home blogs. How to buy a home that's equity will pay for your renovation.

If I were to add up the cost of the renovations to our new home - contractor fees, materials, and fixtures - it totals more than $40k. But it didn't cost us a cent.

Wa-wa-what what? That's right. Here's how we did it.

It starts with seeking out a home that's sound but cosmetically challenged and using its untapped value to renovate it to your taste. In finance-speak I guess this is called something like "instant equity" but I prefer to think of it as getting my dream renovation on someone else's dime.

1. (Optional) If you are selling the home you are leaving, sell it FSBO and pocket the equity as well as the agent's fees you would have paid out and invest in your next home. I call this step optional, because even a first time buyer can find a diamond in the rough. I mention it, because the more money you can put down on your new home, the more negotiating power you will have when it comes time to make a lower-than-ask offer. This is especially true if you live in a hot real estate market like ours in New York City, where you may need to make a cash offer to beat out other bidders.

My FSBO apartment in Carroll Gardens

FSBO means for sale by owner and it may seem a scary proposition - especially if you are me and one of your favorite real estate blogs Curbed.com starts to question your ability to sell FSBO and get your asking price

The Curbed commenters' qualms on my behalf were, as it turned out, unfounded. I stay abreast of real estate in my area. For a long time I paid for a StreetEasy.com Insider membership (it's free now if you register). This gave me true market comps and closing prices. So I knew that I was in a hot market and how to price my sale. I also do digital marketing for a living so I knew where and how to list my home online. And my design eye as a Renov8or helped me stage my home to sell. 

We received multiple bids the first week at the asking price and the winning bidder waived contingencies. This was the brass ring - almost as good as an all cash offer. It meant that when the appraisal came in below the asking price, as I was very certain it would (bank appraisers often lag the market), the buyer would not have an out or a chance to renegotiate the sale price at the appraisal stage.

2. Scout out the next real estate frontier. I was, sadly, priced out of my suddenly "hip" neighborhood in Carroll Gardens, Brooklyn. It happens. And when it does, you move onto the next frontier. I didn't have to do a lot of research to find my next hood. I'm pretty much always perusing real estate sites - in the way I guess some women shop for shoes. Or some men, guitars. (Ross!) The fact is, I simply *heart* houses. Brownstoner.com covered my move as a “trendsetter” among Brooklyn bloggers moving to Queens.

But the real trendsetters actually arrived in Jackson Heights years ahead of me, snapping up pre-war classic sixes for less than I paid for our 2 Bedroom midcentury. I don't feel we're on the tail end of this wave, however. I look around me at our local green market on Sunday and see a familiar tribe of displaced Brooklynites all here for the same reason - large, well-designed homes at a still-affordable price - and I'm certain more will follow.

3. Find a home that's under-valued. If you see an apartment you like, research the building's sales history and other units in the same line or other comps in the neighborhood using sites like StreetEasy.com and see if you can find a comparable home for less. I actually first saw and fell in love with an apartment two floors below us that had exactly the same layout as ours but an asking price way more than we wanted to spend. StreetEasy.com revealed ours on the top floor was already in contract for about $50k less. And you know that caught my eye! Top floor, less money? What's wrong with it?

Other buyers who are not Renov8ors have the opposite approach. Some will pay more for a home that's "turn key" or in "move-in" condition. The New York Times "The Hunt" actually featured our home and a couple who rejected it in favor of the more expensive version that I first saw.  Here's what the NY Times had to say about our home's cosmetic issues that turned off these (and other) buyers. 


This home had some eye sores, but I could see the potential

If you missed the reference, ours is the one that had an ugly "wall of mirrors".   :-)

That article made my day! Because by the time the story went to press that wall of mirrors had already been turned into the loveliest wall of books you can imagine, thanks to an inexpensive Ikea Hack that cost about $800. Seven Billy Bookcases + height extenders + trim = Wall of Bookcases. The irony was not lost on Brownstoner: A Renovation for a Wall of Mirrors.

4. Stalk properties in contract - they may fall through.  I fell in love with the more expensive apartment, so I stalked the less expensive version that needed a renovation. It was in contract, but I continued to watch its progress in my Open House alerts each week. And, just on the off chance, I reached out to the agent, expressing my interest and asking her to contact me should her contract fall through. And that is exactly what happened!

It is especially rewarding to find a property you love where a previous contract has fallen through. A home languishing weeks on the market can create an opportunity for you to make a below-market offer. 

This home had been on the market well over six months and the owners had already moved into their new home. This, coupled with cosmetic defects, positioned us to make an offer well below the asking price. What we brought to the table was sound finances that were guaranteed to pass co-op board approval plus the ability to move quickly.


Where we reinvested our instant equity
5. Invest your "instant equity" in your renovation. The difference between our purchase price and the assessed value of our home at closing gave us instant equity that more than covered our renovation. Were we to sell tomorrow, we would get our renovation money back and more. 

And we got a home renovated to our taste. We didn't pay for someone else's renovation; someone else paid for ours. That's Renov8or Gold!

See House Tour.