Drive through Lafayette on any recent Sunday afternoon and it’s hard to ignore all the Open House signs. It’s clear — as a buyer in Lafayette, you have wonderful options today. Still, home buying almost always involves compromise because each home is unique.
We take our wish list, prioritize it and then get as close as possible. If we’re lucky, the only work is unpacking boxes. More often, we buy a home prepared to make at least a few small changes.
Sometimes, for the right property, we’re prepared to make a lot of changes. But will that renovation be a wise investment?
Maybe. It depends on the numbers.
Renovation Math
Before you buy, do a bit of math — and some neighborhood analysis.
Start by figuring an all-in cost of purchasing the property you want: Add the initial purchase price and related transaction fees to your best estimate of the cost of your planned renovation.
Now take a step back — how does that all-in number compare with nearby home values… is there a chance you’ll be overbuilding for the neighborhood?
If you have the gift of time — and for popular properties you won’t — it’s best to get as close to a realistic renovation number as possible. That will mean involving an architect, doing materials research on the cost of major components (plumbing fixtures, windows, lighting, trim work and more) and then seeking contractor bids.
Renovation Breakeven Estimate
A back-of-the-envelope way to look at it, though, is to figure a theoretical spending limit, using subtraction:
For example, if top end houses in that particular neighborhood sell for $1.25 million, consider that number your all-in investment estimate.
Take the $1.25 million “neighborhood” number and subtract the amount you’ll have to pay to buy the house. What renovations could the dollar difference easily buy?
Then decide — if I stopped renovations there, would I be happy?
If you want to talk through these numbers, I’m here. One of the advantages of focusing on the Lafayette real estate market and working on as many transactions as I do here, is that I have a clear picture of current neighborhood values.