If you’re buying a home on a budget, you may have to give up on a modern interior or updated flooring to stay within your price range. However, if you choose a home “with potential,” you can always renovate and update it over time. What does a house with good potential look like? We have created this guide to help you choose a house that you can turn into your dream home.
Why Choose a Home With Potential?
A move-in ready house doesn’t require any repairs or renovations. A home can still be considered move-in ready but not updated. This means that the colors may be outdated, or the kitchen may require a renovation. While functional, a home with potential may need updates to be competitive in the market once you’re ready to sell.
Outdated homes typically sell for a lower price than other homes in the market. This can make buying a home with potential an excellent financial decision. You can choose something with a lower purchase price and redirect any saved funds into making updates. When you’re ready to sell, you’ll likely have more equity in the home since it will now be worth more.
5 Ways To Tell If a Home Has Potential
Here are a few things to consider when home shopping to find the one that’s perfect for your DIY projects and goals.
Evaluate Repair Needs
It’s important to remember that there is a difference between a fixer-upper and a home that needs renovations. A fixer-upper may require projects that make the home livable, such as electrical repairs or installing new flooring. Take a thorough walk-through of the home to determine any necessary repairs. Consider your ability to DIY these projects.
Understand Lending Requirements
It’s also important to keep lending requirements in mind when choosing a home you’ll eventually renovate. Work with a local mortgage broker to evaluate the available loan options and determine what is right for you. Keep in mind that most loans have some specific requirements when it comes to renovation needs.
For example, FHA loans may not be the best option for homes requiring extensive livability repairs. However, some FHA loans do issue lending for renovations as long as the home’s future value is within a certain amount. Veterans Affairs, or VA loans, also sometimes allow borrowers to finance renovations. Instead of having to take out a separate loan, you can roll costs into your mortgage payments.
Always discuss your renovation plans with your mortgage broker to ensure you choose the right loan. Of course, if you plan on only making aesthetic renovations using cash, you may not have to involve your lender at all.
Calculate the Cost of Renovations
It can be helpful to calculate the cost of necessary renovations you want to make to a home to decide whether they’re worth it. Compare the estimated cost of renovations with the potential return on investment (ROI). Some of the best ROI projects you can make today include HVAC updates, garage door replacement, upgrading your home’s siding, and entry door replacement.
Be sure to calculate in any labor or professional services if you plan to make any renovations that you can’t DIY.
Compare the Home To Similar Houses
You can better understand what the home could sell for after renovations and the potential return by visiting similar homes in the area. Schedule a showing to check out homes of a similar size and in the same neighborhood. Consider what’s different between them and how much the asking price differs. You can also work with a licensed realtor to complete a comparative analysis to better understand what buyers seek in the current market.
Look for the Ugliest Home on the Street
Sometimes, the ugliest home on the street simply needs a new coat of paint and some strategic landscaping. Don’t let a home’s aesthetics or curb appeal stop you from buying. While a home’s curb appeal can help it sell faster and for more money, you could complete projects on your own that boost it. This means you can make aesthetic upgrades while living in the home, and then when you’re ready to sell, you’ll earn even more.
Don’t be afraid to view homes in the area that are untraditional, less than appealing, or weird. Fewer buyers will also check out these homes and put offers on them, which means you may secure a better sale price. You may also have more room for negotiations, which can help cover closing costs.
Buy a home at an excellent price by choosing one that requires renovations. Make sure you check your lending requirements and ensure the home needs renovations rather than major liveability repairs. With a little designing and DIY work, you can quickly build equity while making a home you love.
