If you’re tired of paying rent every month for an apartment that will never be yours, then you’ve probably thought about buying your own place.
Even though it means paying a lot of money upfront, you’ll be working towards fully owning your own place one day. It’s basically a small investment you make every month.
As I write this, I’ve bought two apartments and it’s surprising how much it has taught me. And I might as well share the knowledge with you guys. So hopefully you’ll be smart and learn from my mistakes.
1. Make Sure the Building is in Good Shape
Yes, it’s the basics, but often overlooked. I’m sure you’ve seen these real estate listings – pictures of the interior look great, but there are no pictures of the house from the outside. In most cases, it’s done on purpose. The house itself is usually almost collapsing, or there’s something else they don’t want to show you.
It’s easy to paint walls white inside and make everything look 30 times better than it actually is. To make sure the house doesn’t have any well-hidden problems, take a friend with you who’s experienced in building. He’ll immediately spot the biggest issues and will be able to ask hard questions from the broker or the seller.
2. Find as Many Flaws as You Can and Write Them Down
Once you’ve critically looked at the apartment with your friend who has some experience in the construction industry, write down all the flaws you were able to spot.
When you come to negotiating the price, you can bring up all the flaws and bargain on the price (the amount you’ll save really depends on the amount of flaws you were able to find with the apartment and the house).
3. Talk to the Neighbours
Not via email, but actually talk to them in person.
This is a mistake we made twice, with both of our apartments. We didn’t talk to the neighbors directly. We didn’t contact anyone from the building (besides the seller, who owned the apartment next door) so we weren’t aware of renovation plans or any other issues (such as old pipes that need changing etc).
Neighbors can also give you an overview of who lives in the house and whether people are prone to renovations, updates etc. If you talk to different neighbors and not just one, then they’ll be able to tell you who are your direct neighbors – are they problematic party people who get police reports all the time or just regular people minding their own business.
4. Don’t Fall in Love with It
When we sold our apartment in Tartu, we met several potential buyers who just fell in love with the interior. And they all happened to be women for some reason. I know it’s easy to get emotional over a nice Scandinavian kitchen or vintage sink, but this can cost you a lot of money in the end.
I’ve said it before and I’ll say it again – try to look at the potential of the apartment, not the colours and the furniture. It’ll make it much easier for you to sell it later profitably. Painting the walls and adding nice furniture costs usually about 3k-10k but raises the price of the apartment 20-30%.
5. Ask about Renovation Plans and Funds
Make sure you know the plans for the house. Also make sure you know the difference between a plan and a wish/desire. Our broker who sold us our apartment in Tartu said that the renovation should start in spring (we bought it in autumn). That was all basically a hoax, or an unrealistic desire. There was never a solid plan for who would execute things or any project for the work.
3 years later, the renovation still hasn’t been done. So make sure you ask to see the building projects related to any future plans and distinguish whether it’s a plan that’s going to happen or just a hope. Also ask how much has been saved up for renovation and what is the overall cost of the renovation.
6. Ask about Loans and Other Liabilities of the Apartment Building
If the house looks really nice and recently renovated, it’s either a new house or a renovated old one. If it’s the latter, it probably has a loan that needs to be repaid.
Ask what’s the amount of money your apartment owes and what’s the monthly payment and interest. Regular loan wisdom applies here: if the interest is high, pay it back as soon as possible instead of monthly payments.
- Our Home Makeover: Before & After
- Our Home-Buying Story: Why I Avoid Brokers
- Investing 101: The Stuff You’re Not Taught at School
7. Negotiate the Price
Most of the offers on the market have around a 5-20% higher price than what they get sold for. The higher the price, the more room you’ll have for a discount. And if you have cash to pay for the entire apartment, you can get an even bigger discount (as it makes the process faster for the seller). Don’t be afraid to ask for a lower price, especially once you bring out the flaws you were able to spot with the apartment.
We’ve managed to lower the price at least 5% on both of the apartments we’ve bought. Why not more than that? Because both of them were under current market price, as I scout the real estate sites constantly and try to find the pearls with high potential.
8. Look at the Potential
I cannot stress this enough.
A nice white interior and white walls are not worth you paying 50% more of what the apartment is actually worth. Paint them white yourself and make a trip to IKEA (or scout second hand furniture shops) – you’ll need to dedicate some of your time but if you’re short on money, that’s the right way to go.
9. Make Sure You Know Why You’re Buying This Apartment
Are you planning to rent it out? If that’s the case, you should look at the location above all, and the neighbors. If your tenant is going to have a problematic neighbour, he’ll be gone pretty soon and you’ll need to find a new tenant. And it can turn into an endless tenant search.
Are you buying it for yourself (or for your family) to live there? Then the location isn’t as crucial, but as a back-up plan, think how easy or hard it would be to sell it (as examples – what if you divorce or need to move urgently to help out your elderly parents).
10. Add at Least 10% to the Sum You Plan to Spend on Renovation
If you buy a property that hasn’t been renovated and you plan to do it yourself, make sure you know what you’re getting yourself into. It will take a month more and 10% more money (at least) than anticipated.
With our current apartment, it has taken us 2 more months than we anticipated, as a lot of things went wrong. We also estimated to spend € 3-5k on the renovation, but in reality it has taken us close to 6k already. And we’re not finished yet…
11. Try to Find Out Why This Apartment is for Sale
This is especially important if you spot other apartments for sale in this house as well. Maybe there’s something major wrong with the house, or the monthly loan payments (to repay the completed renovations) are too high. There can be several reasons, and the broker or the seller usually don’t want to disclose them.
Try to ask neighbours whether they’ve thought about selling their apartment, and if so, why.
And remember, kids:
It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.Warren Buffett
If you’re interested in following the renovation process then go follow @gutsycouple on Instagram.