SPECIAL SECTION: TRANSFORMATION
PRIME MARKETS FOR GUT JOBS
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you bought it. In Toledo, for example, the properties we buy top out at about $125,000, so there is no way I would ever take one of those houses ‘down to the studs’ because the room for profit simply isn’t there.” Does this mean that gut jobs are out in Toledo, Ohio, or other areas with low median home values? Absolutely not. However, it does mean that your exit or profit strategy for your deals must accommodate a hefty investment of capital on the front end of the deal, and it does mean that these markets are not necessarily “ripe” for this type of total property makeover. investors with a taste for taking prop- erties down to the studs? Think Realty Magazine looked at nearly 300 metro areas in order to identify housing mar- kets that might offer some promising “gut job” deals. We looked for markets with well-positioned, older housing inventory in high-demand geographic areas, evaluated how much room that inventory might have to “grow” in value if it were updated, and factored in unemployment rates, incoming new employers, and population trends to try to predict which markets were likely to experience demand on a long enough time frame to accommodate exten- sive renovations. Lastly, we evaluated various lead-generation options in the area, asking, “Is there proven access to properties that both need this ‘gut job’ approach to renovation and may be pur- chased at prices low enough to enable this strategy?” The answer often lay in whether or not blighted properties could be found and purchased in areas experiencing rising buyer demand. The resulting list of four metro area markets represents a unique cross-sec- tion of strategy, economics, and envi- ronmental factors: METHODOLOGY What markets might be ripe for
CHICAGO, ILLINOIS About 40 percent of Chicago’s housing stock was built in the 1960s or earlier and is therefore more likely to require a total or near-total renovation. That housing stock has an average comparable value of 79 percent compared to more modern inventory, and the average value a fully updated, retail property in the area ranges from $277,127 to $302,767 , meaning that ARVs will likely accommodate a gut-job renovation if a property is purchased at a deep enough discount. *ATTOM Data Solutions
COURTHOUSE STEPS FACTOR
Chicago ranked first among major metro areas for a significant supply of vacant, potentially blighted inventory, such as “zombie foreclosures,” available at steep discounts at auction. *Campanile Group Courthouse Profits
DEMAND FACTORS
4Markets Ripe for “Gut Jobs” FOR THE EXTREME RENOVATOR IN ALL OF US.
Chicago is the third-most populous city in the United States according to the U.S. Census Bureau
Chicago is currently experiencing tight
Chicago has the “most diversified economy” in the U.S. with a population of more than 4 million employees, 400 major corporate headquarters, and 36 Fortune 500 headquarters. *Moody’s Analytics 2017
housing inventory and short times on market. During the third quarter, days-on-market hovered around 45. Sales volume fell due to falling inventory, however, increasing demand for available housing.
by Carole VanSickle Ellis
D
“Renovation is like living in the wild: You do what it takes to survive.” With sentiments like that about re-doing one room, the stalwart bravery and dedication involved in taking on an entire home comes into clearer focus. Yet, many real estate investors do it ev- ery day. Sometimes, however, the desire to make over a house can overwhelm practical factors, like profit margin. “In a lot of markets, you will find deals on houses that are so old, for ex- ample, that they need a gut job, but you cannot justify it by investing metrics
at all,” observed Bryan Blankenship, owner at Ohio Turnkey. Blankenship noted that his local Ohio markets, such as Cleveland and Toledo, simply do not have the after-repair values to support the cost of a complete overhaul of a property in most cases. “In nearly every situation when you completely overhaul a house, you need an ARV high enough to support a budget that will likely range between $80,000 and $150,000,” Blankenship explained. “That is for just about any property, no matter how inexpensively
o an online search for the term “kitchen remodel,” and among
the big-box stores’ ads and the local contractors’ offers to submit free bids, you will find a plethora of motivational pages dedicated to one thing: getting the remodeling homeowner through the process. These pages feature everything from tips for living on takeout to, far more predominantly, motivational quotes about how soon it will be over. Examples include: “Remodeling is like pulling a loose thread on a cheap sweater; the job keeps unraveling,” and
Trend Alert: Local agents report first-time buyers are so frustrated with the buying process they are avoiding smaller homes and condos in favor of larger “starter homes” like split-level and ranch homes that are relatively easily converted from dated layouts to modern, open- concept layouts.
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