Dennis Lynch of Rumson New Jersey Highlights Pitfalls To Avoid When Buying or Renovating a Property
Dennis Lynch is a real estate analyst based in Rumson, New Jersey. Over the years, Dennis has helped his clients achieve their real estate goals by leveraging many different investment strategies. His unique experience has also allowed him to identify potential pitfalls that can dramatically reduce the return on investment — or even result in a negative return.
This article shares tips and strategies from Dennis Lynch for avoiding buying and renovating pitfalls in the challenging New Jersey real estate market.
Five common buying pitfalls and how to avoid them
There are dozens of buying pitfalls new real estate investors may encounter every day in Rumson and throughout New Jersey. Below are five of the most commonly seen challenges.
Pitfall #1: Over-paying for your real estate
Perhaps the biggest mistake for new investors — whether they are buying a first home or dipping their toes in the flipping pool — is over-paying for a property. Dennis Lynch says it is vital to let logic, not emotions, drive your buying decisions. Just because a property checks all the emotional boxes — perfect location, great bones, ample space, energy-efficient features, etc. — does not mean the property is the perfect one for you.
When emotions control the buying process, it is easy to get swept up in a bidding war, even when the price is well-above market value. Dennis says over-paying $50,000, $100,000, or more is not a logical approach. It may be difficult or impossible to recover financially. His advice is to realize that "the right home at the wrong price is the wrong home."
Pitfall #2: Paying the right price, but failing to consider budgetary constraints
In the same vein overpaying for real estate is failing to realistically consider your debt to income ratio. Even when you can buy a property at or below the New Jersey fair market value, if your monthly payments push your budget to the limits, it may not be the best choice for you.
According to Bankrate, an ideal debt-to-income ratio should be no more than 28%. When you factor in all monthly bills — credit card debt, car loans, revolving credit, utilities, insurance, etc. — the ratio should be less than 36%. If you have high-interest credit card debt, staggering student loan obligations or other bills that consume a large number of your spendable earnings, paying down debt before taking on another monthly bill will help you get better terms and loan structures.
Pitfall #3: Trying to do everything on your own to save money
Many first-time real estate investors are convinced that, with little time and research, they can save money by doing everything themselves. They look for property for sale by the owner to avoid paying real estate commissions. Inexperienced buyers may opt to complete home inspections and title searches themselves. Some draft their contracts to avoid paying legal fees.
While all of these tactics can shave the initial cost of buying a piece of property, the potential risks could be devastating. A faulty contract may involve hiring a lawyer to settle disputes. The average hourly rate for a lawyer in New Jersey is between $200 and $459 per hour, according to Clio. If you add in compensatory damages, court fees, and filing charges, even an accidental error could end up costing you thousands of dollars and years to settle.
As an experienced real estate market analyst who has seen many people fall into this pit, Dennis Lynch recommends every buyer lean on experts in drafting legal contracts, inspecting a property for safety and code violations, surveying, title search, transaction negotiations, and closing. By spending a little more upfront, you can avoid future problems that could cost you tens of thousands of dollars in the long run.
Pitfall #4: Failing to understand local market trends
While some inexperienced home buyers fail to do enough research, others don't do the right kind of research. For example, relying on national research and market stats to inform decisions is a serious mistake. National averages rarely reflect local market conditions. One of the primary benefits of working with a licensed real estate broker is that these professionals have access to real-time changes in demand and inventory data. Even within a city, selling prices and buyer preferences can be very different.
Avoiding problems is often as simple as partnering with a real estate professional with in-depth local knowledge and a broad network that enables them to spot emerging trends. These relationships also allow real estate agents early access to information about properties that are coming on the market soon but may not be widely advertised.
Pitfall #5: Failing to make a plan
Even though buying a home is often the most expensive purchase most people make in their lives, many people approach the process as casually as heading to the big box store to load up on staples. Before researching property on the market, creating a plan is essential. According to Dennis Lynch, creating a plan by asking yourself several questions is an excellent strategy. Here are some questions your plan should answer.
- Are you interested in a private home or a commercial property?
- Is this a short-term solution or a long-term investment purchase?
- Looking for a revenue-generating asset?
- What type of property are you interested in – single-family, HOA, retail, commercial, multi-family?
- Will a mixed-use neighborhood serve your investment goals?
- Do you have an exit strategy?
Once you know why you want to purchase and what goals you have for the near-term and long-term, you can start researching available inventory. This helps you save time by avoiding properties that do not fit into your plans for the future.
Five common renovation pitfalls and how to avoid them
Along with buying challenges, there are several renovation mistakes people make. Here are five rehabilitation stumbling blocks property owners face.
Renovation Issue #1: Failing to follow code
Failing to get the appropriate permits and schedule inspections may seem like an easy fix. You can always file for permission retroactively — right? Not necessarily. In New Jersey, the fine for renovating without a permit may cost you $2,000 a day until a permit can be issued, and you could be forced to remove upgrades and start over.
It is vital to realize that any project completed without required permits and inspections could result in loss of insurance cover and/or higher premiums going forward. While some minor rehab projects do not require permits, it is highly recommended that you visit your zoning and permit office before you drive the first nail or modify any structural components. Even if DYI is your plan, consulting a professional contractor may be in your best interest to avoid code violations and penalties.
Renovation Issue #2: Overspending on unnecessary details
Adding top-of-the-line appliances and finishes to an older home is often a poor decision. Keeping designs consistent with the original features and repairing rather than replacing some items will help you control the budget and could improve resale value and profit potential.
From a professional view, Lynch recommends starting with updating the roof and other weather-proofing projects that protect your investment. Then, depending on your budget, you can modernize the property to make it more appealing to buyers.
Renovation Issue #3: Failing to order sufficient supplies and materials
It may seem logical, especially when working on a tight budget, to order exactly what you need. However, things happen. Discovering you are a dozen bricks short can be a disaster. The exact color, size, or texture may no longer be available.
Avoid this problem by ordering 10% to 15% more than you need. Any excess can be sold or returned for credit, and you save yourself the stress and added expense if an unexpected event happens.
Renovation Issue #4: Over-improving for market conditions
The vision of creating the best house on the block can be tempting. It sounds like you should be able to improve profit margins if your renovated dwelling is better than anything else the neighborhood has to offer. Don't be fooled. Over-improving luxury items and features in a solid working-class neighborhood will not draw high-end spenders. Creating a welcoming, attractive aesthetic is a better approach.
Renovation Issue #5: Re-defining curb appeal and period fundamentals
Curb appeal — the drive-by appearance — is the first thing a potential buyer will see. Negative improvements — things that make the property stand out disconcertingly — drive away qualified buyers. Avoid installing plastic windows and false fronts that diminish the original design. Instead, opt for period detailing to improve the curb appeal.
Knowing how to avoid buying and renovating pitfalls helps real estate investors realize their financial goals. With more than a decade of localized New Jersey real estate experience, Dennis and Marshall Lynch can help you make better decisions based on your goals and aspirations.