Buying A Rehab?

There are many things to consider.  On TV, you see old, out-of-date houses that through the miracle of architects, designers, contractors, and TV hosts are transformed into dream homes in just 60 minutes, on time and on budget.  But the reality is quite different. 

As a HUD/FHA Inspector and Consultant, I have evaluated many older homes in serious disrepair that buyers wanted to rehabilitate, and obtain a 203k loan which would cover the cost of the home plus the renovation work. 

Just this week, I have inspected two such houses.  One is a 72 year old small house with a rather charming exterior loan is in place and work has begun.  But, the contractor discovered that far more work and materials were going to be required than he had bid for the job.  This will exceed to loan amount. 

The other house I inspected for a potential buyer from Southern California.  Admittedly, the 80 year old house with a log cabin addition, carved up into five bedrooms and three bathrooms, and sits on a piece of real estate that overlooks a lake and has a fabulous view of the mountains.  Very tempting.

In my opinion, this house has significant issues whose repairs would run well beyond any loan that could be obtained.  

1.    The floors are so irregular that some of the interior doors cannot be opened or closed.  There is no foundation and one would have to be built to bring it up to the current code.  This single item would be prohibitively costly. 

2.    Add to that, the house has considerable wood rot damage and much of the wood has to be replaced.   

3.    Although there appears to be a fairly new roof, so much of this house has been added to, probably without permits, that it lacks any redeeming charm or functionality.  

4.    If this eighty year old building had historical significance, it might be viewed in another light.  However, taking all things into consideration - the cost of the property plus the cost of the renovation to convert this house into a safe and healthy home – costs would far exceed the ultimate loan value. 

Bottom Line:  Even if you decide to go ahead with a major rehab, be advised that the process is full of pitfalls, construction delays, cost overruns some of which may be covered by the lender and some which definitely will not be covered.  There will be a lot of unanticipated stumbling blocks, sleepless nights, frustration, maybe even crying.  That said, most people who take this on, in the end, feel it is worth it.

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