1. First, team up. You’ll need a real-estate agent, a lawyer, and an architect and/or engineer experienced in handling basket-case houses. Before you make an offer, says Prudential Douglas Elliman’s George van der Ploeg, you and your broker should look up recent sales on nearby blocks to see what both wrecks and rehabbed houses are selling for. That’ll help set a realistic renovation budget.
2. If you need to borrow money toward renovation, prepare to pay a half-point or so more for a construction loan than you did for your mortgage. According to Julie Teitel of GuardHill Financial, only a few lenders offer these loans, and they come with pretty specific terms. The bank will want to see the plans; it will let you fund 75 percent of the renovation at most. The money will be parceled out in five phases, and an appraiser will inspect the house to make sure each stage has been completed before more cash is released.
3. Have your lawyer search for a Certificate of Occupancy, which states whether the Department of Buildings considers The house a one-family or a multifamily. If it’s the latter, you will likely spend $35,000 to reclassify it, says architect-expediter Michael Zenreich. If there’s no C of O, you’ll need an expediter or contractor to file the paperwork, a process that takes months. Otherwise, says attorney Edan Pinkas of Friedberg Pinkas PLLC, “you’re living there illegally, and you’ll never get the sign-offs” to renovate. Even if you do get away with it, the lack of documentation can bite back when it’s time to sell.
4. If the house has been a rental, you’ll need a Certificate of Non-Harassment attesting that you didn’t force former tenants out, from the Department of Housing Preservation and Development. If you don’t have one, you’ll have to go to HPD and look up old leases, even if the house has been empty. “It may have been livable three or four years prior, and there may be tenants that still retain rights to living in the building,” says Pinkas. “The last thing you want is you close on a property, you start doing renovations, and all of a sudden, people who have a right to live there [show up].”
5. Walk the house with an engineer or architect to price out every possible expense, whether you’re gutting the house down to the joists or doing a nip-tuck. Old floors that slope may be merely settled, but they can also signal rot. There’s no one absolute deal-breaker—everything is theoretically fixable, but it has to fit your budget and your ambition level (plus the building code). For example, Zenreich says, some buyers dig out the cellar to add living space, but that’s a massive undertaking that will most likely require access through your neighbors’ property—and sometimes, they may demand a big check.