If you’re actively looking for a house, you know that the market is unpredictable right now. Outsmart other homebuyers by finding overlooked, high-potential properties.
With supply at an all-time low and home prices rising across the country, winning a bid on your ideal home while staying within your budget may feel impossible. Instead of competing with dozens of other buyers on a recently renovated home with immaculate finishes, consider buying a property that doesn’t meet all of your current criteria — one with a lot of potential that could meet your criteria within a few years of moving in. These properties will be less competitive, more customizable, and often offer a better deal.
Your first step: Decide if buying a house that needs some improvements is right for you. You can go for a total fixer upper — something that needs more space and renovated kitchens & bathrooms — or look for something in between.
1 – Make a list of your must haves
Think through what your ideal property looks like in 2-3 years from now. Consider the following categories:
How large does it need to be?
– Home office and/or gym space
– Living space
Which style elements are most important to you?
– Look and feel of the neighborhood
– Exterior style
– Kitchen & bathroom style
What amenities does it need to have?
– Spaces for entertaining
– Backyard features
What location is ideal for you?
– Commute time
– School districts
– Walkability / public transportation
2 – Build your target list
- Use Zillow to search for the properties that check the boxes from your must haves. Only focus on the variables you cannot change. This includes:
- Lot size
Leave the filters for things you can change blank, because you’ll use Realm to assess what changes are possible. This includes:
- Square feet
- Quality of finishes
- Amenities (Pool, Garage, etc)
For example, if you’re looking for a 4 bed/3 bath in the Denver neighborhoods of Platt Park & Washington Park, you’ll need a budget of $900k-$1M for something like this property:
845 S Pennsylvania St, Denver, CO 80209
For sale: $950,000
4 bd/3 ba
2,318 square feet
0.11 acre lot
If you filter on Zillow for similar lot sizes, but at a lower price range of $600-700k knowing that you’ll invest $100-250k into upgrades, you’ll find several more properties available on similar lot sizes.
732 S York St
For sale: $700,000
3 bed/2 bath
0.11 acre lot
985 S Emerson St
For sale: $699,000
3 bed/2 bath
0.11 acre lot
1325 S Sherman St
For sale: $660,000
2 bed/2 bath
0.07 acre lot
1335 S Pearl St
For sale: $635,000
3 bed/2 bath
0.09 acre lot
- 3 – Get familiar with potential value
Once you have your target list ready, look up what’s possible on each of these properties so you’ll know which ones can eventually meet your must have criteria. Realm will show you:
- Untapped potential – how much the property could be worth after various upgrades
- Buildable square feet – how many square feet you can add on the property and how many bedrooms and bathrooms you can add within local zoning restrictions
For example, the 985 S Emerson Street property has 1,339 additional square feet allowed and is zoned for a 1st or 2nd floor addition and/or a backyard home.
4 – Research ROI on top projects
Save all of your target properties to your Realm account and start exploring the property plan for each home to gather cost and value estimates of top projects at the top of the list.
For the 4 Denver properties identified, each has enough buildable square feet to add an additional bedroom and bathroom. 985 S Emerson also needs additional living space and 1335 S Pearl could use a kitchen renovation.
|Property||Listing Price||Upgrades||Cost||Future Value|
|732 York||$700k||1 bd/bath addition||$100k||$941k|
|985 Emerson||$699k||Living space + 1bd/bath addition||$268k||$1.09M|
|1325 Sherman||$660k||2 bd/1 bath addition||$140k||$1.03M|
|1335 S Pearl||$635k||Kitchen reno + 1 bd/bath addition||$150k||$879k|
Based on Realm’s cost & value estimates, 1325 S Sherman St is the best deal:
- $660,000 list price
- + $140,000 for a 2 bed/1 bath addition
- $839,000 all in cost
- With a $1,026,000 estimated future value, that’s a +$187,000 ROI and is $111,000 than buying a 4 bed/3 bath out of the gate.
5 – Complete your due diligence
Once you’ve found a property or two that you’re serious about, you’ll want to gather detailed information on what you’re allowed to build on the property and what previous work has been done so you can feel confident you’re buying a home with good bones.
Consider our Optimized Home Value Report which includes:
- Optimized home state – what combination of projects will help you increase value the most
- Physical property study – what you can build including setback and zoning analysis
- Previous work assessment – record of all building permits on file for the property
- Comps – neighborhood analysis including 3 most similar homes and 3 comparable lots
Curious to learn more about this report? Check out this sample.
Start researching properties in your city at myrealm.co and let us know how it goes. Either drop a note in the comments below or send us an email at firstname.lastname@example.org