If you hadn't heard much of the term "fixer upper" before a few years ago, you can thank Chip and Joanna Gaines for launching it into the mainstream.
Since 2013, the Gaineses have starred in one of HGTV's most-watched home improvement shows, aptly called "Fixer Upper."
The couple announced earlier this week their show will conclude after its fifth season airs this fall, much to the disappointment of the show's obsessive fan base. By the end of their run, Chip and Joanna will have completed nearly 80 on-screen "dream home" renovations in Waco, Texas.
For many featured on the show, working with Chip and Joanna gives them more than their dream home — they also clinch a good investment.
When it's time for the big reveal at the end of each episode, Chip guesstimates the new value of the home, after the purchase price and renovation costs. "You're upside right on this thing almost $30,000," Chip tells a satisfied client who sunk about $272,000 into a property in one episode. "Not only did you pick a beautiful house, but I think you made a great investment."
In a small town like Waco, where the median list price is just under $180,000, that's something to celebrate. But in the off-camera world of real estate, the outlook isn't as bright.
In fact, when the housing market imploded nearly a decade ago, over-zealous real estate investors may have played a big part, according to a new working paper by the National Bureau of Economic Research (NBER). That's in sharp contrast to the typical narrative blaming Americans with bad credit who bought homes they couldn't afford. Through an analysis of anonymous mortgage data, the NBER found that it was actually wealthy and middle-class investors — who bought cheap properties in smaller markets, fixed them up and sold them for a profit until the financial crisis struck — who defaulted on their loans en masse.
Just a few years into the economic recovery, HGTV introduced the Gaineses, who have inspired countless Americans to dive back into real estate and invest in fixer uppers of their own.
Shows like "Fixer Upper" make it look easy. Every episode has the same formula. The Gaineses visit three homes with their clients, who come armed with an "all-in budget" to cover the purchase of the home and the various renovation costs, which Chip estimates seemingly on the spot. Improvements almost always include updating countertops, floors, and cabinets, and expanding rooms.
After they purchase the house, construction gets underway. There may be a hiccup here or there that requires the client to fork over an extra couple thousand dollars, but it never derails the project (as far as the viewer can see).
The client in the episode mentioned above bought his home for $169,000, which left him with a renovation budget of $103,000. Though most of the clients featured on "Fixer Upper" have a renovation budget in the mid-five figures — thanks to remarkably low purchase prices — that's a far cry from reality.
A 2016 analysis from Zillow Digs found the average fixer upper was listed for 8% below market value, saving buyers just $11,000 to complete renovations before they break even.
Still, fixer uppers can be a cheaper way to come into homeownership: Buy a run-down, albeit livable, house on the cheap and slowly but surely make improvements without draining your savings account.
"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," Svenja Gudell, Zillow chief economist, said.
"While an 8% 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," Gudell said. When you're left with barely enough cash to cover renovations, the chances of earning a good return on investment are slim to none.
"Do you have the guts to take on a fixer upper?" Joanna asks during each episode's opening credits. Guts are one thing, but finances are another.
Although a few "Fixer Upper" alum have been able to capitalize on the show's popularity — like one couple who listed their home for about 10 times the area's median price per square foot — the average house-flipper doesn't have that luxury.
In the real world, the true cost of a fixer upper may not be worth the potential treasure.
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