Your Guide to Property Restorations
Buying the worst property in the best neighbourhood – the so-called “fixer upper”, can be a great property investment strategy, whether it is for a “flip”, rental or personal use.
Buying property is about finding, creating and increasing value where there is “none” or little.
The value of a property that is well maintained, in good condition and in a sought-after neighbourhood should over the long term appreciate in value. That is because aside from desirable amenities, the state of the property and its location are its biggest value drivers.
Therefore, if you are looking for a bargain, hunt in a sought-after neighborhood for a property that is NOT well maintained and NOT in good condition compared to other properties in the area or what would be expected of similar properties in the area. This will provide you with room to negotiate a hefty discount on the purchase price and to add value by fixing the property to the “right” standard to increase its value.
What is a fixer upper? This is a property the state of which has been allowed to deteriorate over time to a state that is far below a comparable standard or what would be expected in that neighborhood. Sometimes the deterioration is an aesthetic but most of the time it is structural and basically dilapidated. “Oh no, that’s the newest style trend!” - no, algae on walls and rusty taps aren’t in fashion. They never will be.
The more the damage, the bigger the discount should be on the purchase price, but this is very hypothetical in our market because despite the state of the property, sellers and agents in South Africa tend to use subjective and emotional criteria and in determining the selling price often based on the highest selling price in the neighborhood regardless of the state of the property currently being sold. Be careful though as greater damage also means more money to be spent and work to be done – in short, more risk.
In order to make an appropriate assessment of the damage, develop a plan on the work to be done and develop a realistic idea on the possible costs, it is advisable to appoint a profession to assist. Especially because work as and when things are found can increase along with the costs and quickly spiral out of control: A FEW THINGS TO CONSIDER WHEN RENOVATING
Managing risks is the most important consideration. Renovating a house is one of the most stressful projects a person will undertake. Speak to anyone who has a project extended for months on end and completely drained their wallet. Even a small project, like a kitchen overhaul, can feel like you’re building a football stadium without a strict game plan. Saving a couple of bucks by using your unemployed uncle as a contractor could end up bankrupting you. If there’s one industry where you can be swindled - it’s in the home renovations space.
Being realistic about what it actually takes and managing your own expectations is important. You’re not going to spend 5k on an overhaul and end up with a Beverly Hills mansion. Social media and reality TV shows have skewed our perception of property makeovers. Behind every “Extreme Makeover” is an army of workers, design teams, production crews, architects, structural engineers and professional planners. What you see on TV is a small fraction of what goes on in the refurb. American houses are easily torn down thanks to the materials they use to build - your decision to excitedly smash your house down with an excavator in Africa and you will end up living under a bridge…. permanently.
Here are some things to look out for to help you negotiate a better price (apart from the obvious supply and demand), and yes, the agent is trying to get the best price for the seller (who is often emotional and unreasonable), not help you make a good deal.
Identify the structural issues, which include foundations, roofing, electrical and plumbing and the non-structural issues which include dated fittings and fixtures, paint and garden. Structural issues are basically those things that affect the integrity of the property while non-structural issues are aesthetic.
Foundations: Just like your relationship - check if there are any cracks or if proper support exists. Cracks on the walls can be a good indicator of structural foundation problems.
Roofing: What is the overall build quality of the roof? Are there any roof tiles missing, are there any leaks, the age of the roof, any rotting wood beams and gutters not fitted properly? If you’re brave enough - get up on the roof yourself and inspect it. Worth making sure your insurance is in good condition before attempting this.
Plumbing: Check if there are any visible leaks from taps and pipes, if correct materials have been used and if municipal connections have been done correctly. Even if the fittings are great, check the pressure on the taps upstairs. Another pro-tip: open the hot water tap and test the geyser. Nothing is worse than having to replace a geyser AFTER you coughed up the purchase price.
Electrical: Check the main electrical switch box, any overloading, exposed cables, the conditions of the plugs and light fittings and obtain the most recent compliance certificate. Plug your phone into each of the plug points to make sure they work.
Dated Fittings: Check if the fittings still work as intended (i.e., taps, basins, tiles, ceilings etc.) and that they are “modern” and market related quality for the area. These can be a very big cost item in a renovation.
Paint: Not only should you be checking the color and age of the paint but also check the quality of the paint and whether the correct paint type has been used in the exterior, interior and kitchen and bathroom ceilings. Use neutral colours to appeal to the largest market.
Garden: Has the garden been well kept? A well-maintained garden adds great value to a property and provides valuable aesthetic value and makes a huge impression. More importantly buying grass, trees and flowers can be a very expensive and technical exercise.
Whatever you do, fix the property to the highest standard possible and try and appeal to the broadest market possible. This will make it easier to find a tenant or purchaser. Hire an independent valuation expert before buying up the property AND after you’re done with the refurb. It’s much easier to negotiate when you have a sense of the numbers and the range you should be aiming for. It’s a small cost to get professional advice but can save you from agreeing to a bad deal which is much more expensive.
Finally, record the process. Keep a log/ journal of all of the fixes, how much each fix costs you and anything you learnt from that process. This helps massively to avoid repeating mistakes and acts as a guide for your future investments.
Here’s to many prosperous property turn-a rounds!