Today’s Chicago home shoppers are focused on one thing- saving money. A combination of inflation and rising interest rates have made consumers tighten their belts. They are looking for deals.
Home prices are failing to stimulate the market, but the demand for reduced costs has caused home buyers to go in another direction. They are shopping for fixer-uppers. Experts believe that fixer-uppers are a money-saving option, even considering the repair costs.
However, the smart shopper must still be weary. If repair costs are too hefty, they may find themselves in over their heads. This article will serve as a guide for investing in fixer-uppers in Chicago so you can feel confident you are making the right investment.
Evaluating Fixer Upper Potential in Chicago
Homebuyers must be aware of their expenses before investing in a fixer-upper. A walk-through will give them some idea of what they are in for. But you must dig deeper before signing on the dotted line.
Here are some strategies that will help you evaluate your fixer-upper potential.
- Get A Home Inspection: A home inspection will provide you with an outline of all the repairs needed in the home.
- Estimate Renovation Costs: Create a list of the projects you must complete to get your home in shape. Then speak to a contractor to get an estimate of the total cost. Permits may be required. They will increase your expenses. However, if you can DIY some repairs, you can cut your costs.
- Consider Fixer-Upper Loan Options: Some lenders offer fixer-upper loan options that will cover your down payment and your renovations. Examples include the Federal Housing Administration (FHA) 203(k) rehabilitation loan and the Fannie Mae HomeStyle Renovation Mortgage. They will allow you to put a reserve in escrow to fund renovations.
- Make an Offer: Once you have an idea of the mortgage expenses and renovation costs Chicago homeowners should make an offer that fits in their budget. The offer should include contingencies so they can back out if major flaws are revealed during the inspection or appraisal.
Determining Return on Investment for Fixer-Uppers
Return on investment measures how your home will pay off after it is sold or refinanced considering all expenses and renovations. It can be difficult to determine a fixer-upper’s ROI because it’s likely to increase in value after renovations occur.
Most appraisers will use ARV (after renovations value) which combines the value of your home and the renovations’ potential to increase home value. It considers market shifts in Chicago real estate, the property location, the home’s square footage, contractor estimates, the purchase price, and other factors.
High-value renovations will increase your home’s ARV
Once you have determined your ARV, you can calculate your ROI. An ROI is calculated by dividing the net return on investment by the cost of the investment. The net return on investment equals the value the renovations will add to the property when pricing it for resale.
Fixer Upper Pros and Cons
Investing in fixer-uppers in Chicago comes with its share of pros and cons. Here are some to consider:
Pros of Fixer Upper
- Reduced Cost: The biggest advantage of a fixer-upper is the reduced cost. The lower cost means a lower down payment, lower mortgage payment, and lower interest rates that can remain constant throughout the time you own your home.
- Less Competition: There tends to be less competition for fixer-uppers. As a result, buyers have more bargaining power when they make an offer.
- Customized Results: A fixer-upper is a diamond in the rough. You can make any changes you choose and transform it into your dream home.
Cons of Fixer Upper
- Uncertainty: You can budget your home and get all the necessary inspections. But unexpected issues almost always arise, especially in older homes. You may end up exceeding your budget.
- Long-Term Construction: After your purchase, you probably can’t wait to make your house a home. But long-term construction can keep you from getting too comfy. Prepare to live in a construction zone until the renovations are complete.
I Will Help You Find the Perfect Fixer-Upper
I will use my expertise to help you find a fixer-upper that is suited to your needs. I will guide you on budgeting and expenses. I will ensure you make a wise long-term investment.
Contact me for a profitable homebuying experience.
