Newlyweds Nicole Foster and Chris Hill of Chicago wanted a house they could grow into but not an astronomical mortgage to go with it.
So after shopping around, they bought a fixer-upper, a Northwest Side bungalow on a corner lot with a big yard. The house was the style the couple was looking for, but it needed work. The couple put in hardwood floors where there weren’t any before, installed zoned heating, brought the electrical up to code and reconfigured the floor plan, which included converting a first-floor bedroom into a family room and gutting and enlarging the kitchen to 22 by 14 feet.
“Doorways were moved so that when you come in you can see the back of the house. It was very dark before,” Foster recalled. “[Now] all the rooms feel light.”
Foster said they paid about 33 percent less for their fixer-upper than the homes they had seen that already were renovated. And while the couple saved on mortgage payments, they did pay a price in time and hassle.
“We lived pretty much in our bedroom,” Foster said, during their renovation, which stretched into nine months. “We would set out a workman’s table to have meals on. We were lucky enough that we could move the stove and refrigerator into the basement,” where there also was a sink.
Sometimes buying a fixer-upper is the only way to gain entry into an established neighborhood or a prime school district where new construction and move-in condition homes command premium prices, real estate agents say.
Although the real estate market is full of shoppers looking for pristine houses that need no work, the practice of thorough remodels is not rare. There are 1 million large-scale remodels a year, according to Gwen Biasi of the National Association of the Remodeling Industry, based in suburban Chicago. And there are more than 3 million kitchen jobs of any type and about the same number for bathroom remodel. Total industry sales, which include some retail sales, are projected at $250 billion for 2005, said Biasi, director of marketing and communications for the trade group, which certifies its members in several categories.
But the caveat from contractors, real estate agents, mortgage lenders and homeowners experienced with fixer-uppers is: Know how much it truly will cost and whether you can afford it. Know your community and what home values it will support. And, know yourselves.
Before you buy
Knowing the difference between a fixer-upper and a teardown is key to your decision on what to buy. Those criteria may vary by community in what will be valued by the market and what won’t, real estate agents say.
Structural defects such as foundation problems can render a house unworthy of a large investment, and so can the need for significant structural improvements–such as a new roof or new windows–that will be taken for granted by new buyers and will hardly ever add value to the home to offset the cost of renovation, said Barbara O’Connor, an agent with Baird & Warner’s Chicago North office.
The most cost-effective improvements are cosmetic–paint, new carpeting, new lighting and siding, for example.
“If you change out flooring and tile, that’s not too much and it brings the house up in value,” said Kristine Erickson of the Sennstrom Group of Coldwell Banker Primus in Geneva.
“The best [fixer-uppers] are the homes where older people live,” O’Connor said. “They keep it clean, they maintain their homes. It’s just a matter of pulling up the carpet.”
It’s not inappropriate to ask the seller for permission for inspections–structural, electrical or even by an architect–and to make them contingencies in the contract, Erickson said.
And though buyers look for a discount on a house that needs fixing, don’t expect to get a big enough break to recoup your improvements immediately, agents said.
In fact, “many areas are inflated because of the schools, so you aren’t going to get a discount,” Erickson said.
Make sure that if you had to sell in a year or two, you could break even, O’Connor added.
Also, pay attention to the zoning, she said. In Chicago’s desirable Andersonville neighborhood in Edgewater, if the property is zoned R3, which allows the maximum-size single-family home to be built on the lot, developers will want it, she said.
And check to see if you can add on and still comply with the codes of your town, Erickson said.
Before signing on the dotted line, do the math. Once you’ve done a thorough inspection, add what it would cost to improve the property. Be sure to add an additional 5 to 10 percent to your estimate to account for cost overruns, inflation and changes you may make. Next, subtract that from the home’s likely market value after improvements, based on comparable real estate prices in the neighborhood. That should help you arrive at a price to offer.
Work out, too, how you’ll pay for the renovations. Do you have the money saved or enough equity to tap to achieve your goals?
Foster and Hill, who owned a condo in the Bucktown neighborhood and bought before it became so hot, could count on their profit from its sale to help finance their remodeling, Foster said.
Planning the renovation
Foster and Hill were only a year into their marriage when they bought their fixer-upper and undertook a major remodeling of it. But they acted like veterans. They researched what they wanted in a home and how they wanted to fix it up, communicated closely with each other and had a good idea of what they could comfortably afford.
Because the house was considered a duplex, the first permit they got was to convert it to single-family, Foster recalled. But the one thing they weren’t prepared for was how a renovation can stretch out.
“We closed in January 2005 [after putting in an offer in November 2004] and moved in May,” Foster said. The project was finished in October.
“Allow more time than people tell you,” said Don Van Cura of Don Van Cura Construction in Chicago, who was the contractor on Foster and Hill’s bungalow in the North Mayfair neighborhood.
“If everything is ready to go”–meaning the plans are set, the money lined up, the materials picked and the permits obtained–“allow three months for [a complete re-do] of a kitchen and two baths,” he said.
Unlike new construction, Van Cura said, in remodeling “there is a lot of protecting and undoing going on.” You have to seal off and protect the parts of the house that are not being worked on and often you have to correct the mistakes of those before you, he said.
Gutting and remodeling a kitchen in a mid-priced scenario–solid-surface counters, high-quality appliances–will run about $50,000, Van Cura said, while bathrooms will be $15,000 to $20,000 each.
Foster and Hill went the mid-priced route in their kitchen. They chose white, Shaker-style cabinets with glass knobs; stainless appliances, but not Sub-Zero; honed granite countertops; and, as an island, an 80-year-old table that was redone, Foster said.
“A lot of what we did was pre-work,” Foster said. “My husband and I went through a lot of books and showed what we liked to” their contractor.
Because they wanted their renovated home to be more modern but stay true to bungalow style, “We went onto bungalow sites and looked at books to see how wood and kitchens were treated,” Foster said.
Changes during the project can be costly, Van Cura said, so know what you want.
Finally a good attitude and realistic expectations of what you’re getting into are essential if you’re buying a fixer-upper.
That’s why it’s important to “enter into the renovation as a partnership,” said Lois A. Vitt, chairman and founding director of the Institute for Socio-Financial Studies in Middleburg, Va., and author of “10 Secrets to Successful Home Buying and Selling” (Pearson/Prentice Hall Books, $17.95).
If you have children, “let them be a part of the process of what you are doing and why you are doing it, and enlist their support and help,” he added.
It’s important, Vitt said, “to have a stable relationship.”
And a refuge from the dust and dirt, Van Cura said.
For Foster and Hill, the fixing up to their bungalow isn’t over yet. There’s still the exterior, Foster said.
“We definitely looked at the home [as something] we could grow into,” Foster said. “It was our first year of marriage that we decided to do this. It definitely was a bonding opportunity. We both equally wanted it.”
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What pays
Scouting a fixer-upper that’s a smart investment takes a knack for recognizing the right things wrong.
Most profitable: Cosmetic fixes
– New paint (interior or exterior)
– Drywall repairs
– New lighting
– Replacement doors
– Minor repairs
– Fresh landscaping
Less profitable: Major renovations that bring a house in line with its neighbors
– Adding a family room
– Adding a bedroom
– Adding a bathroom
– Replacing kitchen counters or cabinets
Least profitable: Structural repairs
– Fixing cracked foundation
– Re-wiring
– Replacing roof
– Replacing windows
–Tribune staff
