First home fixer-upper ?
If you have a vision, some common sense and tenacity, buying a home to renovate could be a very wise decision, writes John Cradden
Published 09/04/2015 | 02:30
First-time buyers usually want shiny and new or at least a home in walk-in condition, and it's easy to see why.
Most folks in this situation - think young couples or families with young children - are at a time in their lives when both money and time are likely to be tight.
The main priority is to get on the property ladder, so the hassle of dealing with the many unknowns of a fixer-upper is probably a step too far.
But if you have the imagination and the vision, allied with a bit of common sense and tenacity, buying a fixer-upper as a first home could be the best financial decision you'll ever make.
"I have always believed that first-time buyers should be looking at fixer-uppers," says Carol Tallon of property buying agent BuyersBroker.
"They usually present the very best quality of build at the best price in the best locations. Think of 1940s council builds, with bug gardens and large room dimensions - amazing potential."
When buying fixer-uppers, one advantage many first-time buyers will have is flexibility in terms of the length of the time needed to make the property habitable, because they will not be tied into a property chain.
The other advantage, besides the satisfaction of getting a property in a good location and renovated exactly the way you like it, is that you may never have to move home again - if you like that idea. This means never having to top up your mortgage to trade up and all the other costs associated with having to move house.
Tallon also points out that the low availability of new stock in the current housing market is another factor in favour of a fixer-upper.
However, there is no getting away from the fact that fixer-upper much bigger financial challenge, particularly in terms of the home loan.
"Banks have never been very forthcoming with fixer-upper mortgages for FTBs, but this is a counter-productive policy," said Ms Tallon.
"Banks really need to get on-board for lending to FTBs in this manner. The market has evolved, and FTBs are much more savvy now compared with the buying behaviour we saw a decade ago."
Getting a loan for a fixer-upper is certainly not impossible, but you will need to prove that whatever renovations you plan will increase the value of the property to the point where it the market value is more than what you invested in it.
Mortgage experts say that the cost of the renovation must be reflected in an increase in the value of the house. So if you buy a property for €200,000, invest €100,000 in renovations, then the house needs to increase in value by at least €100,000 - and ideally a bit more.
Some lenders, such as KBC, will lend up to 90pc of the purchase price and 90pc of the renovation costs provided you meet a certain number of conditions, according to Meath-based financial advisor Liam Ferguson of Ferguson and Associates.
At the application stage, you will need to show a detailed renovation plan with estimates so that the valuer can independently estimate the finished market value.
"In reality, the renovations will need to be more than just cosmetic for you to get a euro for euro increase in property value," said Mr Ferguson.
If the renovation is in any way extensive or complex, don't count on being able to do any of the work yourself or manage the project yourself to save money.
Under the latest building health and safety regulations, you'll need to engage an architect or engineer (as well as the builder) for any serious renovation project, who can certify that all work is being carried out to an acceptable standard.
The renovation work finance will usually be released in stage payments as the redevelopment advances.
"There's also additional legal work involved as your solicitor has to request each stage payment from the lender."
According to Ferguson, the applicants must also qualify for the full amount from the outset.
"For example, if they are seeking to borrow €250,000 to purchase the house, plus an additional €100,000 for renovations, they must qualify for a mortgage of €350,000."
So, there are a fair number of extra steps to consider when buying a fixer-upper compared with a place that needs no work.
Ms Tallon advises folks to get a quote from a builder before they even get to the stage of making an offer on a property.
"Too many inexperienced buyers hire architects too early, or have the building surveyor quote for refurb costs when neither is appropriate. A surveyor should only be assessing the structure of the build and pointing out what needs to be done.
"Once you know what is needed, have a builder quote. It will be more realistic."
‘We feel renting is dead money’
Teachers Siobhán Donnelly and Tony Walsh have just bought a house, and managed to complete the deal in record time.
The pair only started house hunting last October, made a bid in December and had everything in place and were able to move in by March.
"We thought it was going to be complicated, but buying a house turned out to be pretty straightforward in the end," said Ms Donnelly.
Mr Walsh is a primary school teacher in Scoil San Treasa in Mount Merrion, Dublin.
Ms Donnelly teaches in the Gardiner Street National School in Dublin city centre.
They have purchased in an estate in Glasnevin near Dublin City University after concentrating their search for a home in the same estate, as they like it.
They are both in their mid-20s.
Ms Donnelly was living at home with her parents before they moved into their new home, but Mr Walsh had been renting since 2011.
Asked why they decided to buy while they are still in their 20s, Ms Donnelly replied: "We feel that rent is dead money. You are continually reading about rents going up by €100 every month. There is great security in owning your own place."
They opted for a mortgage from Permanent TSB after finding the lender among the most competitive when it comes to lending rates.
"We chose Permanent TSB because they pretty much had the best rate and they were more organised than the other banks," Ms Donnelly said.
They have fixed the mortgage rate at 3.8pc for three years.
Having the certainty of a fixed rate will make it easier to budget for the next while, they added.
‘You need to continuously educate yourself on building trends to make informed decisions’
Patrick Lynch and his wife Orlaith are doing a major renovation and extension to a mid-60s semi-detached corner house in Dundrum that they bought in May of last year.
"It needed a fair bit of work - it had a poor attic conversion, sub-standard electrics, poor insulation and windows and a poor garage conversion," he said.
"None of that put us off the purchase as we knew from looking at other properties that the majority needed some amount of work and I wanted a new project."
Although it is their second home, they built their first home in Co Kildare - a four-bed bungalow with a separate double garage - 10 years ago.
Patrick, an electronic engineer by profession, sourced the builders and managed the project himself.
"Doing this definitely gave me a good understanding of the building process and a good idea of the costs involved in various aspects of building."
One big difference with the Dundrum project is in how it is being managed. "We have a main contractor working on this as with the new building regulations it makes it difficult go with direct labour."
Patrick recalls getting financing for the first house being quite tricky because not every lender was willing to finance new builds at that time. But it was less of an issue this time round as they managed to clear their first mortgage before re-locating to Dublin and needed only a 50pc mortgage from KBC.
What advice would he give to anyone considering a fixer-upper?
"I enjoy the process but I wouldn't say it's for everyone. I think you'd need to have a good grasp of the basics and be willing to continuously educate yourself on current building trends in order to make informed decisions."
"We also have the benefit of living with my wife's parents while the renovation is going on."