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February 28, 2022

5 Risks Of Buying A Renovated Home

5 Risks Of Buying A Renovated Home

The appeal of Prescott is undeniable. Many of us have decided to move to this oasis in the mountains to make a home here. Whether that is a permanent year-round home or a second home away from home, we all need a quality residence that will serve us well. With that in mind, how can you feel safe buying a home in an area where “flipping” is becoming so prevalent? Seeing a beautiful, renovated home can be very appealing, but as homebuilders we know there are tricks they use to make an ugly duckling look like a swan. Here’s what you need to know to protect yourself from the risks of buying a renovated home.

Is it Good to Buy Renovated Homes?

Home renovations can be a great way to ensure a good build stays strong for another generation. Well executed renovations can expand, repair, and enhance existing homes. The problem arises when inexperienced or profiteering actors come on the scene. If a homeowner hires a qualified and experienced builder, they can be sure they get value and maintain high standards. Unfortunately, when a market is “hot” like Prescott is right now, groups called “flippers” come in and purchase low, make some changes, and sell high. The focus is not on quality and longevity, but on a quick turnaround for maximum profit. 

Is Buying a Flipped House Risky?

It can be risky to buy a flipped house because cosmetic changes can obscure real problems. You may have seen those television shows where qualified and concerned flippers rescue a house and that is all well and good, but there are no cameras on profiteering flippers so there is no way to know if they are fixing issues or just covering them in paint. A good inspection can offset these risks, but they can’t find everything. And there are significant risks. Most importantly, you need to be sure the bones are solid and the home systems are in good order. 

Top 5 Risks of Buying a Renovated House

  1. Serious structural problems that a profiteering flipper hid.
  2. Hidden electrical or plumbing deficits that you only discover later.
  3. The harm caused to systems like A/C and whole-home heating during a sloppy, dusty renovation.
  4. Discovering that the charm hid issues with layout or functionality. 
  5. All that shiny newness may cause you to overlook the less glamorous but really vital components of the home like the status of the roof, the insulation, the furnace, or the drain line. 

What Is The 70% Rule In Flipping?

Profit-motivated renovators have developed a system of business that ensures they do well. In flipping, the 70% rule helps home flippers figure out what they should pay for what they can an “investment property”. The rule states that they should spend only up to 70% of the home’s potential resale value (after repairs) subtracting the renovation costs. In this way, they can ensure a solid profit. The concern is, what does this mean for the home buyer? Can the buyer be sure they found and accounted for every problem, or were they motivated to hide issues that were “too expensive”. For this reason alone, we consider it risky to buy a flipped home, unless you are very sure of the quality of work done.

Is It Better To Renovate Or Rebuild?

The question of rebuild versus renovation can only be answered by qualified professionals in consultation with a homeowner. Renovations are wonderful to improve a home that is solidly built and rebuilds are excellent when it is better to start over. A few of the factors that go into that decision are:

  • How structurally sound is the home?
  • Are there issues like mold or rot that need to be addressed?
  • What is the current versus the desired size of the home?
  • What are the conditions of the wiring, the plumbing, and other essentials?
  • Are there historic preservation considerations?

With all the risks associated with flipped homes, we obviously think renovations or rebuilds with qualified builders are a less risky option, but we certainly prefer custom builds over all other options. With a custom build, you create the vision in concert with professionals and get exactly the home you want. You can’t beat that. If you agree, and you are looking to purchase a home or land in Prescott, we strongly encourage you to reach out to us and see if we can help in any way. You can call us at 928-776-0301 to schedule a project meeting.