Should you Remodel or "Move Up"?

According to the Wall Street Journal and the Joint Center for Housing Studies at Harvard University, when pondering this question in 2010, even the majority of homeowners who are not "underwater" on their mortgages are feeling more apt to renovate their existing digs than sell and move to a different home.

This "Do More with Less" theme could well be the theme of 2010 and a nascent economic recovery. In that vein, we wanted to share this video showing how a little space combined with a lot of imagination can result in more than you expect.



The Wall Street Journal article also mentioned a "psychology return on investment" which we are proud to say we covered in one of our previous posts on Getting the Most Out of Home Improvements as "emotional return." A level-headed analysis of costs vs. value should definitely include this non-monetary return on improvements intended to be enjoyed over many years.

Read the full Wall Street Journal Article here.

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[1016]: Architecture + Real Estate [1016] Architecture is ready. Are you?Let us know: Think about it, comment below, then:Check out [1016] elsewhere on the web: Facebook, eHow, SlideShare

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How to Get the Most Return on Home Improvements

As architects, we recently meet more and more homeowners who are interested in renovating or adding on to an existing home rather than seeking to sell and move or to build new.


Their questions are plenty, but usually revolve around one central issue:  How to I get the most out of my home improvement dollar?


Here are some general tips to consider when deciding whether or not to undertake your project:

1. Assess how long you want to remain in the home.  Obviously, if you are thinking of staying put to enjoy the fruits of your improvements for ten years, you will be able to make different decisions than someone interested in moving on from a fixer-upper after only one or two year.  Think of this time as "emotional" or "utilization return" on your investment.  This factor will also affect the life-cycle return of energy efficient improvements such as new windows or insulation.
2. Refer to the latest numbers.  Check out this Cost vs. Value 2009-2010 resource from Renovation Magazine to see how much of your money you can reasonable expect to recoup when you sell the house.  There is data for various regions and metro areas across the country, so you should be able to get a good idea of a general range for typical improvements such as adding an attic bedroom, or renovating a master bathroom.  The difference between cost and value is the true price tag of your improvement.
3. Consider doing some of the work yourself.  Labor can make up anywhere from 15% - 30% (or more) of the cost of a renovation job, so tackling some of the simpler items can make an impact on the overall budget.  Beware, however, of taking on more than you can handle safely and economically.  Frustrations, complications, and delays are always just below the surface on renovation projects.
4. Remain sober about the economic benefit of certain changes.  If you check the Cost vs. Value chart from number two above, you realize gone are the days of renovating a bathroom or kitchen and selling your house for a 20% gain in just over a year.  Is that "true price tag"worth spending to get your emotional or utilization return?
5. Ask for professional advice before undertaking a big project.  As an architect and real estate agent, I am obviously a big proponent of planning and knowing the realities of your real estate market before making decisions regarding home improvements.  Most professionals will be glad to give an quick opinion or consult without cost or obligation.  If you like what they have to say, consider engaging them to help you with the rest of your project.  Find a professional for your job at ServiceMagic.com.

Overall, being realistic with your goals, expectations, budget, and abilities are all critical aspects to a home improvement.  Assembling a team of professional advisers may cost a little more on the front end, but could save big bucks by steering you clear of costly mistakes.

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About Andrew Wilson

As a licensed architect, co-founder of [1016] Architecture in New York and Chicago, and a Licensed Real Estate Salesperson and Realtor with the New York office of RealEstate.com, I bring a unique perspective to the real estate purchase process and see often opportunities where others may not.

I have dedicated my professional life to learning as much as possible about the real estate market and the built environment. I am committed to sharing that knowledge with my clients through exceptional service.


[1016]: Architecture + Real Estate
[1016] Architecture is ready. Are you?
Let us know: Think about it, comment below, then:
Check out [1016] elsewhere on the web: Facebook, eHow, SlideShare

Looking for Chicago or Long Island Real Estate?
To search Chicago MLS like an agent: Click here
To search Long Island MLS like an agent: Click here
(powered by ListingBook)

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Combining Architecture and Real Estate Services

Finding and Renovating a Dream Home: A Case Study

About six months ago, while in the middle of a search for a new Chicago home, a (then potential) client approached [1016] Architecture principal Josh Canale, concerned about the quality of service he was experiencing from his buyer's agent.

Josh offered some house hunting tips from an architect's perspective, such as these and these, and the client nodded and said thanks.

Apparently, frustration continued to mount, because after several weeks, the client contacted [1016] again, this time for real help. The services and advantages that this client experienced with us en route to a dream home show the value of [1016]'s full service model, including:

• Representation in the buying process by [1016] Principal Josh Canale, a licensed real estate agent with Chicago architecture, building code, and zoning ordinance expertise
  
• Full market data research support via our collaboration with Jameson Real Estate
  
• On site design collaborations allowing the client to envision what each potential property could become, rather than being bogged down by what it was
• Increased leverage at the negotiating table due to full knowledge of code and zoning issued of desired improvements
  
• Multiple offer negotiation assistance
  
• Closing administration and assistance
  
• Documentation and measurement of existing conditions of purchased real estate
  
• Execution of design and permit drawings including client design review packages, sign offs, and professional certifications
  
• Acquisition and expedition of required building permits via City Hall
  
• Recommendation of multiple, qualified General Contractors for the renovation work
  
• Pricing evaluation and negotiation with various contractors, ensuring maximum value for the rehab expenses
• Potential discounted building supplies via [1016]'s trade relationships with well-known suppliers resulting in further savings
  
• Construction observation service to help make sure the design is executed correctly
  

In short, we helped the client obtain a "not-quite-perfect" condo in a great location at a great price, then, with the vision for the property already discussed, assisted with the execution of the renovations to make it exactly what the client wanted. This particular property wasn't in need of as much work as a Chicago fixer-upper or foreclosure, but we can help with those, too.

For this busy client, the continuity of a single point-of-contact and combined [1016] real estate/architecture expertise provided value in addition to straight discounts via negotiation and trade pricing. [1016]'s interest in the overall success of the project, including quality, budget, and schedule, did not end at the closing table like a typical real estate agent: we serve our clients to the end of construction.

For private clients and potential real estate investors, [1016] is more than just another architecture company, and Josh Canale is more than a typical real estate agent. Better service on both fronts comes by combining expertise.

Even if you don't require of all of the services in this case study, you can benefit by contacting [1016] Architecture to discuss your project, or fill out our contact form.

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Chicago Home Prices: A Moody Crystal Ball

Want to look into the future of home prices in Chicago? From Forbes.com

"Moody's Economy.com provided Forbes with a housing price forecast for the country's 40 largest metropolitan statistical areas (or metros)--geographic entities defined by the U.S. Office of Management and Budget for use in collecting statistics. The forecast predicts the percent change in home prices over one year, three years and five years, using data from the S&P/Case-Shiller Home Price Index. In the MSAs for which Case Schiller does not publish numbers, Moody's used a weighted average of metropolitan divisions within those areas.

Chicago, IL

Percentage Change:

1 Year, 2009: -16.31%

3 Year, 2009-2012: 1.49%

5 Year, 2009-2014: 14%"

Full Forbes story: click here.

So, on a metro area level, this calculation estimates that it will take five years for median home prices to get back to January 1, 2009 levels. Doesn't really sound exciting, but this is a macro indicator. Obviously, each property needs to be considered independently within this context. If you are in the market, your buyer's agent should be able to help you determine this. Check out this article with our Top Five Tips for selecting a buyers agent, if you aren't working with one already.

Price vs. Value
More importantly than price, however, is value. In other words: is any given purchase a good deal? or: Is the Chicago market still overheated?

Inside the Brackets believes the best way to understand housing market value is relative to median income (HP/MI ratio). This ratio tracks the comparison of housing prices in a given area to how much people typically earn there. Each area has a historical norm, and some are more stable than others. Especially when compared with other large metro areas, Chicago's historic ratio has been relatively consistent, with little volatility.

According to the New York Times, Chicago's historic norm for housing costs around 2.0 times median income. As of April 2009, this ratio sat at 2.5 according to this Interactive graph. The exact numbers are of relatively minor importance, the true meaning of the stat is the ratio.

What does this mean?
With an HP/MI at 2.5 in April, this meant housing prices would have to fall about 25% to get back to historic value levels (assuming negliegable income growth). If prices "only" fall the Moody's projected 16% this year, it means housing (in aggregate) still will not be as affordable as it usually is in Chicago.

So, even though Moody's projects a market price bottom in the next 12-24 months, value indicators like HP/MI may still indicate that prices are a little high historically. This only serves to reinforce the importance of evaluating the individual property and opportunity it presents within the market. In other words, even though prices are down, you can't just pick a house at random and get a great deal (a/k/a value).

What can you do?
During times like this, people who make careful purchases will come out ahead in the long-term. People who make careful purchases, as well as careful improvements to a property, will come out well ahead.

1. Get a buyer's agent who knows your market to help you determine a home's real value.
   
2. Invest wisely in properties where you can add value via appropriate improvements.
3. Keep in mind that even though it's a buyers' market, it's still not like shooting fish in a barrel.
   

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Architecture and Real Estate

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How to Buy a Chicago “Fixer-Upper.”

A Fixer-Upper, or other distressed property such as foreclosed property, bank-owned property, or REO, can represent a great real estate opportunity, especially in today's market. Of course, the potential is wrapped in risk. If you are an individual interested in this type of real estate investment, [1016] and Inside the Brackets attempt here to take some of the mystery out of tackling a fixer-upper in Chicago.

Some of these items were mentioned in our earlier post: What to Look for When Shopping for a Home in Chicago: From an Architect’s Perspective. This is not an exhaustive post, so feel free to contact us with questions.

Get Financing in Place:
This might seem like it should come later in the process but for several reasons this should be the first step (except for maybe contacting us). Here’s why: Getting pre-approved by a lender (not a broker) ensures you can determine a realistic budget for your project.If the property you find is a bargain, it won’t last long. Being pre-approved will allow you to make your offer more quickly and without financing contingencies. For example, bank owned and foreclosed properties typically require the letter of pre-approval with the offer. If you don’t have one, the property could go under contract while you scramble to get financing lined up.It is smart to shop around for the best lender, and this takes time. Rushing to get an offer put together is not conducive to getting a good loan.Confirm the lender is very experienced with the type of properties you are interested in buying. Confirm that the lender will do purchase and construction loans. If you want to use FHA financing, get the requirements from your lender, and make sure you’re looking at properties that meet them.

Determine the Type of Property You are Looking For:
With thousands of properties on the market it is important to narrow your search criteria as much as possible. When working with a real estate agent, and utilizing the MLS, it’s pretty easy to set up very specific search criteria to narrow down your list. Doing this from the beginning will save you time.

Here are some other things to help you determine which type of property might work for you:

• Your interests, existing skills, time available, and budget will help narrow your search. For example, decide ahead of time if you want a multi-unit building, number of units, commercial space or all residential, target neighborhoods, price-range, features, zoning (if necessary), condition of the property, etc.
• Can you perform the rehab work or will you hire contractors?
• How do you plan to use the property and what is your exit strategy? Will you live in the unit (owner occupied buildings are generally eligible for better financing options)? Will it be all rental? Will you sell it as soon as the repairs are complete?
• Depending on the deal that you find, your answers to the above could change.

Working with a Realtor® from the beginning of your search can save time and perhaps even money. In addition to MLS searches in realtime, they can provide you with tax searches, property history and other valuable information to evaluate the property. Plus, in Illinois, the seller pays all commissions, so the buyer gets these benefits with no out of pocket expense.

Find a Property and Make an Offer:
Once you determine your target property type, there will be many that meet these general criteria. How to determine which one deserves your offer? How much should you offer? Is the property worth what the seller is asking? Answers to these questions can be determined by property specific due diligence.

The purpose of due diligence is to uncover and quantify things that affect property value. There are always additional “surprises” along the way, but the more you find ahead of closing, the safer your investment becomes. Formalize your due diligence with written charts or spread sheets.
Formal due diligence will help you compare different properties in an apples-to-apples manner.

Your chart, also called a pro forma, should include all hard cost and soft cost estimates, purchase price, expected rent, expected price when you sell, etc. This will help you understand the value of the property and what the monthly cash flow will look like.

Here are some other top tips for this phase of buying a Chicago fixer-upper:

• Have a contractor on your team to help you get a handle on potential renovation costs BEFORE you offer.
• Don’t be afraid to make offers that are below the ask price. It is common to make offers on 5 to 10 different properties before getting one accepted. If your first offer got accepted, it probably means you were offering too much. In most situations, it is okay to offer well below the asking price, especially in this market.
• If you are confident in your pro forma, the ask price is almost irrelevant. Offer what you want to pay for the property.
• If the seller is a bank, expect long delays in communication. They might ask you to be ready to close in 15 to 30 days and then not respond to you for two months. Just be patient. There’s no way around it, so utilize the time for additional due diligence before closing.
• Work with an architect to have any necessary drawings for repair ready for permit before the closing.
• Interviewing contractors during the closing period can allow construction to start immediately. Because of interest charges, time is expensive in real estate. The sooner you can get the building occupied the better.

Close, Rehab and Move In/Rent
The key to this step is speed, unless you are planning on living in the property. If you are planning on renting your property, market to potential tenants even during renovation/construction. When tenants move in, they pay your mortgage. Until they move in, you are paying it all yourself. Consider using a rental agency to fill your vacant units. They will save you time, which as we said, is money.

Being able to accurately and quickly evaluate the potential of a building is critical to making a good purchase, knowing the required team members and actions to take during closing and renovation are critical to ensuring your purchase becomes a good investment.

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[1016] and Jameson can help you with all of the above.

Through our relationship with Jameson Real Estate, we can represent you as a buyers agent (at no cost to you) and [1016] can help you evaluate each property for zoning and code issues that might arise or stand in the way of making the changes you want to make. Through our relationships with highly qualified contractors we can also help you get estimates for the repairs. And finally, if you would like, we can help you navigate the building permit process and execute construction.

If there are any steps you have questions about, or if you would like to discuss searching for a property, please feel free to contact us. We would be happy to discuss the process further or help you start your search. Let Jameson and [1016] make your purchase and renovation an experience that you’ll want to repeat.

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For additional information, see this How to Buy, Find, and Renovate a Fixer-Upper by Andrew Wilson, AIA.