Are You Ready to See Your Fixer-Upper?
Admit it, most of us are HGTV junkies and feel like we are on a first-name basis with Chip and Joanna! Are you looking for a place to hang some ship-lap or room for a big farm table?
Just because you live in Phoenix doesn't mean you can't enjoy your own fixer-upper. The prices here are a bit higher than in Waco, Texas, but opportunity is knocking!! Most of the Arcadia area's homes were built in the 1950s, but the original ones (best deals, obvious "scrapers") are gobbled up by developers before they even hit the market. The bulk of the homes on the market were updated in the 80s or 90s, but are perfectly livable and comfortable. Some probably even have newer mechanical systems such as air conditioning, pool equipment and maybe even a new sewer line. They are sitting on the market because they are lacking a few of the features popular in new builds: pantries, large master baths, open kitchens. And builders don't want them because there is not enough profit margin for them.
Realtors have a term for these homes: Tweeners. Not original, but not new, these are homes seeking an identity. These homes are your opportunity! You aren't a builder trying to get a new home up as quickly as possible at double the price. You are okay with a slower return on your investment. You are in for the long haul and plan to raise your family here. You want to make changes that suit your family, pick your own paint colors and create a fabulous backyard.
But We Don't Have the Cash for a Remodel!
Most buyers are shopping at the top of their price range. They have worked hard to come up with a 20% down payment or are spinning the proceeds from the sale of their old home into the down payment for their new home. This is where you have to shift your perspective.
Here is how you do it:
- Find a Realtor who understands your MO and can seek out hot areas where remodeled homes or new homes are selling for top dollar.
- Start looking for homes below your price range. We have all heard the adage "buy the worst house on the block" and in the case of Arcadia, look for most dated house on the block. Don't overlook location, this is where the value is! Avoid busy streets, bad school districts and lot sizes that are vastly different from neighboring homes.
- Consider how much it would take to make this your dream home. Now might be the time to find a contractor who can quickly give you an idea of what can and can't be done with the homes you are considering.
- Seek out a lender who does remodel/construction loans. Steve Orsak with EverBank offers such a product. Steve explains, "Buyers and sellers agree on a purchase price, just like a traditional transaction, but the escrow period needs to be lengthened to 60 to 90 days." During this extended escrow, the buyer gets plans and quotes for the changes they would like to make. An appraiser not only puts a value on the existing home, but also takes into consideration the additional value the changes would create. The bank will loan based on the finished product.
- There is a standard closing and construction begins after the close.
Real Life Scenario: I currently have a listing (click here to see pics) perfect for a "value-seeking buyer." It sits on a great street in the "right" part of Arcadia and offers a large lot with a beautiful Camelback Mountain view. It is 3,600 square feet (plenty large enough for most families) and has a 3-car garage (rare for a 1960-build). The home was updated and expanded in the 1990s. The current homeowners invested in two new A/C units, new ductwork, new outside sewer line and a water heater. They know the house lacks a few features that new-build buyers are looking for and have priced the home to account for that. A few floor plan tweaks, some new landscaping and some well-placed trim work would do wonders and add value from the get-go!
Trying to think in terms of the "value-seeking buyer," I have started some of the ground work.
1. I had a plan made of the existing home. It has 4 bedrooms and 3 baths.
2. As a Realtor, I know what features buyers a looking for right now. Using this market knowledge, I sat down with my dream list and a contractor. Without taking off the roof or increasing the square footage, we were able to make most of my dreams a floor plan reality. We increased the bedroom count from 4 to 5 and the bath count from 3 to 4, a huge value add! Here is the revised plan:
From left to right on the plan, here is what we changed:
- Reconfigured the master bath
- Added bathroom access directly from bedroom 2
- Reconfigured that bath to also work as a "powder-plus" type bath
- Transitioned the formal living room (no one really uses those rooms any more) to a formal dining room. Opened that space to the rest of the house by removing some of the fireplace wall
- Reconfigured the kitchen to make it more open to the family room, added an island, a pantry and a breakfast area
- Added a 5th bedroom
- Added ensuite baths to both bedrooms 4 and 5
3. The contractor was able to give me a quick estimate of $300,000 to do these changes. If a buyer were able to purchase the home for $1,295,000, current list price, and put in another $300,000, the buyer would be all-in around $1,600,000. New homes currently under construction in the area are slated to go for well over $2 million. Then, add in your gains from long-term appreciation and you have a winning package. Changes like this will be leaving you saying, "Chip and Joanna who?!"