In California, homebuyers facing sky-high prices have a decision to make—invest in a pricey move-in-ready home or opt for a more affordable fixer-upper.
Project houses in the Golden State can be nearly 30 percent cheaper than turnkey homes, translating into savings that often exceed $1 million in cities like Los Angeles and San Jose, offering potential buyers a lower entry point into some of the nation's most expensive real estate markets.
In Los Angeles, for example, the price difference between renovated homes and those needing work can be as high as $945,000, according to a new report issued by StorageCafe, which could be an opportunity for buyers willing to undertake renovations.
Fixer-upper buyers in the city would spend roughly $255,000 to bring a property up to their standards, according to the report, which would still see the buyer save $690,000 on average by purchasing and renovating a home rather than buying a turnkey home.
Experts say those renovation projects typically involve bringing homes up to modern standards, which can include updates like electrical rewiring, plumbing, foundation work, and major aesthetic changes in kitchens and bathrooms.
"The most common renovation projects are those that bring the home up to code to be deemed habitable," says Jason Gelios, a Senior Real Estate Specialist in Michigan. "From renovating a kitchen to completely gutting the home down to the studs, making sure the home is deemed livable by the city is the focus area."
Cities like Fresno and Long Beach also offer opportunities, albeit with varying scales of investment and potential returns. In Fresno, where the housing market is comparatively less volatile than in coastal cities, the average cost of purchasing and renovating a project house can result in savings of about $149,000 compared to buying a move-in-ready home.
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Long Beach presents a middle ground, with project homes offering a potential saving of around $134,500. Here, the renovation costs can be manageable, according to the report, and the city's diverse architectural styles allow for creative renovations that can cater to a variety of tastes and preferences.
However, experts say that prospective buyers must consider the full scope of risks, which can include anything from competition to unforeseen expenses that arise during the remodeling process.
"Aspiring homebuyers looking to purchase a fixer-upper face the challenges of competing with other buyers who have a stronger offering and oftentimes paying cash for the home," Gelios said. "Some other challenges include not knowing the right financing for buying a fixer-upper, not calculating enough in the budget for unexpected costs, and actually running over budget."
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According to Amy Lynn Schwartzbard, Principal of Life Designs LIC, "Homeowners' key challenge when renovating a property is contracting reliable trade."
"Hiring an interior designer to assist with layouts and the best trade, and sourcing sustainable and budget-friendly resources will save the homeowner time and money in the end," she said.
Elsewhere, "handyman specials" offer even more savings.
In the Midwest, cities like Detroit and Cleveland offer lower entry points for homebuyers. For instance, in Cleveland, renovation properties can be purchased for as little as $79,900, contrasting with the hefty price tags in California.
The potential savings in those areas often exceed 50 percent compared to move-in-ready homes, the report says, providing relief and the opportunity for personalization of the living space.
Similarly, Philadelphia has a high availability of homes in need of TLC, making up 28 percent of the market. The average cost saving when opting for a remodel in Philadelphia is around $96,000, according to the report, allowing for budget allocations towards renovations and improvements.
In markets like Kansas City and Louisville, the appeal of fixer-uppers grows as the savings potential increases. In Kansas City, opting to do the work can lead to savings of over $200,000 compared to buying a move-in-ready home, the report says.
Those markets benefit from fewer bidding wars and lower overall property costs, the report said, which can lead to more predictable renovation spending and less financial risk.
"We are going to see a surge in home fixers with the younger generation," Schwartzbard said. "They care about circularity to support the future health of the environment and quality. We are seeing buildings constructed around the turn of the century that are being restored and repurposed for new use."
While cities like Los Angeles offer dramatic savings even after high renovation costs, other areas provide opportunities for entering the housing market at a much lower initial investment, albeit with different financial dynamics.
For prospective buyers, experts say that understanding regional differences and market conditions is crucial for making informed decisions.
"Location, location, location," says John Sobota, Lecturer at the University of Wisconsin-Stout, Polytechnic University. "This will always be true in real estate."
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
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