Buy a home that needs some work. Save big money by doing the renovations yourself. It’s a no-brainer. Or is it?
Zillow, an online real estate marketplace, analyzed 70,000 listings for fixer-upper homes from all over the country. The big result…
Fixer-upper homes list for just 8 percent less than market value. For a median fixer-upper home, that 8-percent discount equals $11,000 — not enough to cover many renovation costs, especially for larger projects.
“While an 8 percent discount or $11,000 in upfront savings on a fixer-upper is certainly a good chunk of change, it likely won’t be enough to cover a kitchen remodel, let alone structural updates like a new roof or plumbing, which many of these properties may require,” says Zillow chief economist Svenja Gudell.
The smallest discounts in selling prices for fixer-upper homes were found in Phoenix, Atlanta, Miami and in Riverside, Calif., with Phoenix leading the pack.
In Phoenix, the cash discount for a fixer-upper home is just $1,000 less than a home’s market value, leaving buyers very little “savings” for needed repairs.
For buyers in Riverside, Calif., the discount for buying a fixer-upper home is $3,000 and the discount is $4,000 for homebuyers in Atlanta and in the Miami-Fort Lauderdale region of South Florida.
Budget-minded homebuyers in these metro areas should think twice before buying a home in need of renovations.
When renovation costs exceed the home’s discount, it’s more cost-effective to buy a home that doesn’t require extensive renovations.
Of course, there may be instances where buying a fixer-upper home does make financial sense.
More expensive housing markets provide bigger upfront cash savings to fixer-upper homebuyers. In San Francisco, fixer-upper homes are discounted 10 percent — but that 10 percent means $54,000 in savings that new buyers can apply for needed renovations.
In San Jose, the fixer-upper discounts equate to $38,000 in upfront cash savings, and in Seattle the savings are $24,000.
Because of the disparity in fixer-upper discounts from around the country, it’s important to crunch the numbers before buying a home that requires numerous repairs and renovations.
“Fixer-uppers can be a great deal, and they allow buyers to incorporate their personal style into a home while renovating, but it’s still a good idea to do the math before making the leap,” Gudell says.
New and potential homebuyers looking to pay down debt and save up money for home renovations can visit Debt.com for budgeting advice and calculators.