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The fix is in. Shoppers flock to buy homes that need work.
Cable shows are fueling the desire — and unrealistic expectations. The new limits on federal rehab loans are easing the way.
If HGTV has piqued your interest in buying a fixer-upper, new federal mortgage rules may get you to sign on the dotted line.
But home renovation projects can be complicated and are not for everyone.
The Federal Housing Administration’s 203(k) rehab loan program was recently updated to allow buyers to borrow more money (a bump from $35,000 to $75,000) and to give them more time (12 months) to complete repairs. The popular program allows qualified buyers to roll at least some of the cost of updating the home into the mortgage, putting ownership within reach for more people.
Greater Boston’s pricey housing and high renovation costs make the whole process more expensive and riskier than lower-cost markets. The Boston market offered the sixth-lowest return on investment on fixer-uppers in the country in 2023, according to a June 3 study from Frontdoor, a home services app.
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David Bates is a real estate agent with William Raveis in Canton. Even though many buyers prefer to purchase a home that’s in move-in condition, Bates said, more shoppers are interested in fixer-uppers than ever before. But many of them have unrealistic expectations of what it takes to renovate a home, he said, because all the cable TV shows make it look so easy.
“There must be something like 17 of those shows out there, and people think if they watch five of them, they have some expertise,” he said.
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That interest in fixer-uppers is not a regional phenomenon. Seventy-three percent of home buyers would consider buying one if it meant a lower purchase price, according to a January report from the National Association of Realtors. Bates said buyers looking for a project need to be creative with their search.
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“A lot of fixer-uppers sell off-market,” he said. “People are embarrassed that their house needs work, and they don’t want a lot of strangers to see how they live. An experienced agent can help buyers find them.”
In the first week of August, Bates did a search for the word “fixer” on the Multiple Listing Service and found 10 properties on the market. When he searched for the words “as is,” he found 63. When he searched how many listings containing the word “fixer” had sold in the previous six months, he found 69, but they didn’t all sell at a discount. “One in Dover came on for $1,000,000 and sold for $800,000,” he said. “One in Westwood came on at $899,900 and sold for $1,000,000. I’d guess that buyer was a developer.”
Prospective buyers will have to do battle with developers and home flippers for their dream home. Among the US metros with a population of a million of more, Providence and Boston ranked fourth and fifth for the highest percentage of flipped homes purchased by investors with financing in 2023 — 49.2 percent and 48.6 percent, respectively, according to a March 20 report from ATTOM, a real estate data firm. Boston also had one of the largest gross flipping profits on median-priced transactions in 2023 ($158,000), behind only San Jose, Calif., and San Francisco. It didn’t make the top 10 for investors and flippers who paid in cash.
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Bates said the benefits of purchasing a fixer-upper can be financial if the buyers do their homework, but they also present the opportunity to customize their home. Still, he said he doesn’t see many homes selling for big discounts in the current market amid the demand. “Every project seems to take longer and cost more than people thought,” he said. “To buy a fixer-upper, you need to have a lot of drive to keep the process moving and see it through.”
Bates has clients who have done very well with fixer-uppers. In 2018, Danny and Mallory McCarthy bought their first home in Billerica for $420,000. It needed a lot of work, and Danny estimates they spent $125,000 moving walls and making other improvements before selling it this spring for $679,000.
They are expecting another child, so they looked for something bigger. When a dated, old house on the same Hudson lake on which his parents live hit the market, they snapped it up. Danny said he thought other buyers were put off by stains from the roof, plumbing leaks, and a foundation crack, but he looked into them and knew they were projects he could handle. The McCarthys bought the larger home on a larger lot for $850,000.
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“Everything functions here,” he said. “We’re just going to do the upstairs bathroom next month. Then, we’ll give the house a good facelift and then longer term, we’re probably going to try to add a primary master suite upstairs, but that’s a few years down the road. We just got lucky and jumped right to our forever home.”
Rich Rosa is the cofounder and co-owner of Buyers Brokers Only. He agreed that fixer-uppers can be good financial opportunities, but said there are no guarantees. “It’s jaw-dropping how much home renovation costs have increased over the past five years or so, making it more risky to buy a property in need of substantial repairs,” Rosa said.
He advises clients not to take on more than they can handle, especially if they don’t have trusted family or friends in the trades to guide them.
“I tell clients they will be miserable if they don’t have enough money to get the work completed in a timely manner,” he said. “If the home needs $45,000 in renovations, and you only have $15,000 left after closing, it’s just not going to work.”
Rosa said most people who can afford to buy a home in Greater Boston tend to have full-time jobs but not the time or skill sets to do the work themselves. For many buyers in this position, a 203(k) rehab loan can make a huge difference.
“My experience has been that 90 percent of my clients either aren’t aware of rehab loans or really don’t know how these loans could help them get into a home,” he said. “Besides using a rehab loan for major renovations, these loans can help moderate-income home buyers who can afford the home but are apprehensive about a 20-plus-year-old roof and an old, inefficient heating system. What are referred to as ‘stream-lined’ rehab loans can be used to repair a couple of items, say a roof and boiler or windows and siding.”
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He said he had a client use a rehab loan to buy a large Victorian in Haverhill about five years ago. The beauty of a rehab loan, he said, is that home buyers have a solid estimate of the cost of repairs before they make the purchase. His buyers got $72,000 for asbestos mitigation, $22,000 for new wiring, as well as money to repair a slate roof and do cosmetic work.
“My recollection is that they were quite happy with the whole process,” he said.
Jim Morrison can be reached at [email protected]. Follow him on X @jimmorrison617. Follow Address on X @GlobeHomes.
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