Ask Adam: Buying a Flip Versus Renovation

This regularly-scheduled sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty, voted one of Arlington Magazine’s Best Realtors of 2013 & 2014. Please submit your questions via email.

Q. My husband and I are soon going to be in the market for a single family home in Arlington, and we were wondering if you can advise on the pros and cons of buying a flip versus buying a smaller, cheaper home and commissioning the renovations ourselves. I imagine there are differences between the risk you take on, the financing options, as well as the equity you end up with when all is said and done. Can you walk through those and any other considerations?

A. In most cases you are going to get more for your money by purchasing a smaller, cheaper home and commissioning the renovations. If someone is going renovate a home to be move in ready, they are usually going to build in a premium on the sale. This is especially true with homes that are being “flipped.”

If you make tasteful choices and manage your costs carefully, you could create some nice equity for yourself by the time you are done renovating. Another benefit of commissioning the renovations yourself is that you get to choose the options and build the home around your needs. This can be fun and rewarding. The most prideful homeowners I can think of are the ones that renovated their own homes.

I’m only aware of one mainstream loan program that allows you to finance the home and the renovations. It’s a form of FHA called the 203k. It allows you to purchase with a low down-payment and finance your renovations. You’ll want to speak to a lender for more details, but I’ve heard it can be used for just about any home renovations besides a hot tub or firepit.

If the 203k loan does not meet your needs, then you will most likely need to save the money required for your renovations or tap into an alternative line of credit. This will be in addition to the down-payment and closing costs you will need to budget for with your purchase.

The other major consideration is the time and stress involved in renovating your home. It can be fun, but it can also put a lot of stress on your life and relationships. Even a simple bathroom or kitchen renovation should be entered into with caution. Invest ample time up front asking friends for referrals and interviewing contractors. In my experience, working with the right contractors can make a world of difference in how your project turns out and how enjoyable or painful the experience is.

The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.