When Life Happens Mid-Renovation

Last year, Stan and Melinda started renovations on their 1963 ranch in a gorgeous Florida suburb. They had contractors demo the kitchen and, simultaneously, begin construction on a sunroom in the back of the house. Just as the contractors got into the thick of the work, Stan and Melinda decided to divorce. It wasn’t living in a construction zone that ended their marriage… it was just life.

Stan moved out. Construction stopped. No one had the time or energy to supervise the construction that would make the space livable again. And now, managing two households, money was tight. Stan and Melinda finally eked out enough money to finish the kitchen remodel. A kitchen was necessary to prepare dinner and feed the kids, after all. But the back of the house still remained unfinished. And there was no money left to finish the addition.

Stan and Melinda finally reached an agreement to sell the house. But now they’re faced with another dilemma: a prospective buyer cannot get a conventional loan that will cover renovation costs, estimated at approximately $50,000, because right now all that exists is the framing. It’s difficult to get a lender to even agree to finance a home that is mid-renovation. But, even if they do agree to the loan, conventional lenders will cap their financing at what the home appraises for. That isn’t going to leave money to complete the repairs on the house. And what house under construction will take top dollar on the real estate market? The house price would have to be slashed dramatically to draw potential buyers.

It is possible for potential buyers to obtain either a regular or limited FHA 203(k) mortgage or a Fannie Mae Homestyle Renovation—but these loans come with stipulations on how the money can be spent, the timeline for renovation, and who can do the repairs. The average buyer likely won’t be interested in the ongoing paperwork required to manage these types of loans—not to mention the fees incurred with these loans that can continue to accrue through the duration of the loan. Both types of loans also cap the amount that can be spent on a home purchase/renovation.

Stan and Melinda can take their chances on the real estate market. But they need to understand, going in, that their home is not going to command top dollar. They’ll need to price the home lower to even get potential buyers through the door. And, even if Stan and Melinda get an offer on the house, if it’s not a cash offer the deal may fall through. Lenders, understandably, have a real problem lending on houses in hurricane-prone Florida that lack a complete roof.

But Stan and Melinda do have another option. They can sell to a real estate investor. Investors often don’t finance through conventional loans. Since their purchases don’t require bank approval or appraisals, and they won’t be residing in the home, they can purchase a home mid-renovation with no problem. Investors often have a team of contractors in place that can come in and finish the job. So renovations don’t scare them. And an investor may offer Stan and Melinda the same amount they’d earn through the real estate market with a lot less hassle and no real estate commissions.

Selling to an investor isn’t for everyone. But for homeowners in tough, unconventional situations, it can be a way to get quick cash for their home. Then they can walk away from a home they no longer want into a fresh start.


Photo by Lujia Zhang on Unsplash

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