Popular TV shows like “Property Brothers” and “Fixer Upper” romanticize the remodeling process. Even the biggest home rehab jobs come out looking fabulous by the end of each show. However, in real life, opting for a home that needs work too often results in an endless cycle of code violations, remediation and ongoing repairs. As an investor, it’s important to recognize the difference between a fixer-upper with the potential to become a habitable dwelling and a worthless money pit. Specific home and neighborhood factors can help in forming property valuation solutions that can inform your real estate investment decisions.
Good Internal Bones
Nearly every fixer-upper requires both cosmetic and structural changes. However, a home with good internal bones is a home that responds well to renovation efforts — and represents a good bet for lenders. Homes that already possess desirable layouts and general structural soundness minimize the need for tearing down load-bearing walls and incorporating expensive laminated or metal I-beams for structural support. Such homes allow much more flexibility in their floor plans and configurations for furniture arrangement.
Located in an A+ School District
The popular real estate truism states that there are three factors that figure into a home’s value: location, location, location. One of the most vital aspects of location for families with children is the school district in which a home is located. In fact, according to a 2013 Realtor.com survey of approximately 1,000 prospective homebuyers, 91 percent listed school district as an important or determining factor in a home buying decision.
For example, approximately 20 percent of survey respondents stated that they would be willing to give up features such as a bedroom or a garage in order to obtain a home in a desirable school district. One-third of prospective buyers would be willing to settle for a home with smaller square footage — if it was located in the right school district.
Buyers are also willing to stretch their budgets to relocate within a desirable school district. In fact, 20 percent of homebuyers would increase their budgets between 6 and 10 percent for a home in the right school district, while 1 in 10 said they would expand their budgets by 20 percent for a home located in their desired school district.
Located in a Hot Neighborhood
Another real estate truism states that purchasing the worst house on the best block represents a smart strategy for getting into an otherwise unaffordable neighborhood. Of course, there are variations on “worst”: a home that needs a new coat of paint and floor refinishing is an entirely different prospect than a home with electrical code violations that requires professional lead paint and asbestos remediation.
However, even a home with serious flaws may be a worthwhile candidate for a major overhaul if the neighborhood is hot enough and available housing stock is scarce. Property data solutions that evaluate the costs of needed repairs in comparison with comps from similar move-in-ready homes (or any homes) can help both prospective homeowners and lenders determine whether a specific fixer upper represents a legitimate toehold into a hot neighborhood.
Invest Where the Action Is
Another factor that may tip the scales in favor of investing in a fixer-upper is proximity to desirable neighborhood features. While younger people traditionally place a higher value on being close to where the action is — prospective homebuyers in older demographic groups also value the option of ditching the car in favor of walking or biking.
According to the 2015 National Community and Preference Survey conducted by the National Association of Realtors and the Transportation Research and Education Center at Portland State University, half of millennials preferred living within walking distance of shopping, entertainment and other amenities. Large proportions of survey respondents from other generations also preferred walkable communities: 43 percent of Generation X and 38 percent of Boomers. Even 30 percent of Silent Generation survey respondents, who are now in their 70s, 80s and beyond also preferred living in walkable communities.
Property Data Solutions for Evaluating Fixer-Uppers
In addition to the factors listed above, the willingness and ability of prospective homebuyers to provide sweet equity in the form of performing at least some of the work themselves also factors into whether a fixer-upper represents a good real estate investment prospect. Savvy real estate investors take each of these factors into consideration. Previously, considering such factors required a significant amount of guesswork. Today, DataTree offers research and property valuation solutions that eliminate the need for guesswork. With DataTree, real estate investors can gain the real estate and market insight to make smarter decisions.