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‘Bargain’ homes can be money pits

Buying a “fixer-upper” can save you money, and possibly put you in a preferred location for a lot less than you thought. 

And they are definitely worth looking at because, as estate agents are always saying, it is much better to purchase the worst home in a good neighbourhood than to buy the best home in a bad area.
 
However, says Shaun Rademeyer, CEO of SA’s biggest mortgage originator BetterBond, you need to be especially careful when you consider buying a “bargain” home, because you could easily end up having to deal with much more renovation and repair work than you thought.
 
“If the property is simply ‘tired’, it may take only a coat of paint, some modern fixtures and fittings and some landscaping to bring it up to the standard of the surrounding homes and increase its value.
 
“But run-down properties often require quite a lot more than that, and potential buyers would be well-advised to have the ‘bargain’ property they are thinking of buying thoroughly inspected by a professional before they sign an offer to purchase.”
 
Once you have the inspector’s report, he says, it will be much easier to be realistic about what it will really cost to renovate the home properly, and then to consult with an experienced local estate agent to work out whether this expenditure would mean overcapitalising for the area.
 
“Remember if the home needs any structural changes, you will need to include engineer’s and architect’s fees in your renovation budget, as well as those for the actual building, plumbing and electrical work that may be necessary.”
 
In addition, says Rademeyer, you would have to get plans for any alterations agreed to by the neighbours and then approved by the local authority, which is likely to take quite some time and could mean that you had to pay a lot in holding costs – the bond instalments and  rates and taxes – before you could even start renovating.
 
“Adding all this up, buyers usually find that it is not worth taking on a major renovation if their plan is to complete it and resell within two or three years. Generally you need to live in a renovated home for an extended period before property values in the area will rise enough to enable you to recoup both your original purchase price and your renovation expenditure should you wish to sell.”


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