With home prices and interest rates still at record highs and inventory squeezed, homebuyers and real estate investors may be better off purchasing a fixer-upper in some cities.
At least that’s according to a report from StorageCafe, which found that fixer-uppers cost an average of 29% less than homes that are ready to move in. And in 20 of the largest 50 cities, they can cost 50% less than a regular home.
And it seems fixing up a home is becoming more popular. While a fixer-upper might be daunting, as it requires extra investment and know-how, more than half of potential homeowners would consider buying a home that needs remodeling, according to a RE/MAX survey.
“More and more millennials are looking to fix up a home to make it their own because they are not finding many homes available or [have] the ability to compete for the home,” Jason Gelios, a Realtor in Michigan, told StorageCafe.
Best U.S. Cities to Buy a Fixer-Upper
To find the best places to buy a fixer-upper, StorageCafe worked with the real estate search portal Point2 to analyze over 70,000 listings in the 50 most populous U.S. cities. They then calculated the difference in asking prices for homes that had characteristics of being a fixer-upper, such as “as-is” and “TLC,” and regular listings. StorageCafe then compiled a list based on savings as well as potential inventory in a specific location.
Overall, Los Angeles is one of the best cities for renovators, despite its hefty price tag, StorageCafe found. While the median asking price for a turnkey home is $1.9 million, a fixer-upper is “only” $1 million. And with 26% of homes for sale representing fixer-uppers, house flippers have plenty of option to choose from. Still, remodeling will still cost on average an extra $155,000, the analysis found.
Other cities in California, such as Long Beach and Fresno, are also appealing for house flippers. While it noted that fixer-uppers tend to be smaller than turnkey homes, the savings and amount of inventory in the area could make it appealing to real estate investors.
| Top Cities to Buy a Fixer-Upper | Fixer-Upper Inventory | Turnkey Home Median Asking Price | Fixer-Upper Median Asking Price | Potential Savings |
|---|---|---|---|---|
| Los Angeles | 26% | $1,995,000 | $1,050,000 | $945,000 |
| Chicago | 19% | $424,000 | $235,000 | $189,001 |
| Long Beach, California | 20% | $972,000 | $837,499 | $134,501 |
| Kansas City, Missouri | 13% | $399,900 | $170,000 | $229,900 |
| Minneapolis | 20% | $330,000 | $204,950 | $125,050 |
| Dallas | 12% | $500,000 | $283,000 | $217,000 |
| Fresno, California | 13% | $452,050 | $303,500 | $148,550 |
| Baltimore | 26% | $237,450 | $135,000 | $102,450 |
| Louisville, Kentucky | 13% | $319,950 | $185,000 | $134,950 |
| Philadelphia | 28% | $277,900 | $181,500 | $96,400 |
The report also found that the Midwest is another place with potential for fixer-uppers at a fraction of the price of homes in California.
Chicago came in second place, with 19% of local listings in need of renovation and potential savings of, on average, $190,000. Home improvement loans are also lower than in other major urban areas, at around $75,000.
Meanwhile, Minneapolis also made the top 10, with fixer-uppers in 20% of active listings and an average cost of just $65,000 to remodel.
Southern cities also made the cut, with Dallas offering a bargain of nearly 50% less than the average home. Even with home improvements averaging $105,000, it’s still cheaper than buying a recently renovated home.
Surprisingly, the report found that not all fixer-uppers are cheaper than other homes. In Austin, Texas, buying a fixer-upper could actually cost $259,100 more than a ready-to-move-in home. The same is true for San Jose and San Diego, as well as New York City.
According to StorageCafe, the increase in price in these regions is likely due to location, as many fixer-uppers in these cities tend to have more living space than newer homes or are located in highly sought-after areas.
The Bottom Line for Real Estate Investors
With home prices still relatively high, real estate investors who are home improvement savvy and OK with not having a return on investment for a few months could stand to make a pretty penny by investing in a fixer-upper.
Even considering the price of renovating, in many major cities, it may make more financial sense to buy a fixer-upper and renovate it. Not only can you rent it for more money if it’s recently renovated, but you may also be able to turn around and sell it for double the price.
Still, buying a fixer-upper is a lot of work, as it can come with many unexpected costs and complications. And while interest rates and prices are still relatively high, the market could change by the time you’re done renovating and ready to put the property back up for sale.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
