House Renovation Businesses: Chicago’s Growing Industry
Have you noticed more fixer-uppers sporting fresh, bright “Sold” signs in your Chicago neighborhood recently? If so, you’re witnessing first-hand the growing popularity of house flipping in Illinois. Lean more about house renovation businesses here.
With housing inventory tight and home prices rising across Chicagoland and beyond. Investors are capitalizing on the demand by buying dated or distressed properties, renovating them, and selling to eager homebuyers. A house renovation can help increase the value of a home. The margins can be sizable if flippers execute well.
But successful house flipping takes more than just slapping on a coat of paint. Now, explore the Illinois real estate scene, what it takes to profitably flip houses, and whether you have what it takes to renovate properties.
The Illinois Real Estate Market: Strong Tailwinds for Investing
Before diving into the intricacies of flipping, John Goodrich, owner of I BUY IL says it helps to understand the overall housing market conditions in Illinois. The market largely determines how profitable house flipping can be.
Overall, the state of Illinois real estate is strong. Home prices have risen substantially in recent years, due to high buyer demand and historically low inventory. Redfin reports the median home sales price in December 2022 was $260,000, up 6.1% from the previous year. For context, nationwide home prices were down 2.9%, so Illinois is bucking the trend.
This dynamic of low supply and strong demand is especially notable in the Chicagoland area. Cook County saw home values rise 30% since the beginning of the pandemic to the start of 2022. With powerhouse industries like finance, healthcare, and technology in Chicago, the area draws new residents. Yet housing supply hasn’t kept pace, driving bidding wars on the limited inventory.
Beyond Chicago, other major Illinois cities like Springfield, Rockford, and Peoria have seen steady home price appreciation driven by local job growth. And with Illinois projected to grow 3% by 2025, housing will remain undersupplied for years to come.
With strong tailwinds like these, house flippers in many Illinois markets can capitalize by renovating outdated homes and selling them quickly for strong profits. But to succeed, you need the right blueprint.
Crunching the Numbers on Illinois Flipping
When house flippers analyze potential deals, they focus on one key metric: the spread between purchase price and market value after repairs. The greater the spread, the more profit opportunity.
It’s time to walk through the math using round estimates:
- Purchase 3 bed, 2 bath house in need of updates for $250,000
- Invest $75,000 into new bathrooms, kitchen, floors, paint
- List house for sale at $425,000
- Net profit = $100,000
The exact purchase prices, investment amounts, and sale prices will vary greatly by neighborhood. But with the current dynamics, there are ample properties in Illinois that fit this model.
While your mileage will vary, some estimates say that typical profit margins in Illinois are 50% or higher. That beats the stock market handily and offers a stream of regular income for flippers.
Within Illinois, the best areas for flipping are where home prices have risen substantially but inventory remains tight. Cook County is red hot, given Chicago’s housing undersupply. But even secondary markets like Springfield, Peoria, and Rockford offer solid flip opportunities.
The key is uncovering the value discrepancy, buying low, and ensuring market demand after repairs exceeds your total investment.
Why Illinois Flipping Activity Is Rising
Clearly the opportunity is there. But why the sudden boom in house flipping?
The housing inventory crisis is a primary driver, as buyers compete for a shallow pool of homes. With so little to choose from, buyers are more inclined to look past a dated kitchen or bathroom if the location, layout, and bones of the home are solid.
This presents the perfect opening for flippers to add value through a house renovation. By providing move-in ready homes to compete buyers, flippers fill a niche while earning strong returns.
Adding fuel, the improving Illinois economy and job market allows first-time homebuyers to finally afford downpayments. As they enter the market alongside usual buyers, demand rises higher.
Finally, with stock market volatility deterring some investors, Illinois real estate presents a tangible alternative with more predictable returns.
As a result, flippers see enormous potential to capitalize on the imbalance between surging homebuyer demand and constrained housing inventory.
Key Strategies for Successful Flipping
With so much opportunity ripe for the picking, you may be eager to dive in and secure your first flip project. First, explore tips for flipping effectively:
Find Profitable Deals
The foundation of every successful flip is buying at the right price. Network with experienced real estate agents who can tip you off to deals before they hit the MLS. Drive through target neighborhoods to spot fixer uppers with potential. And don’t just look at listings—some of the best deals will be off-market at first. Focus your search on neighborhoods with rising home values but lingering outdated properties. Buy the worst house on the best block for maximum upside.
Accurately Estimate Costs
The other half of your profit equation is house renovation costs. Get quotes from multiple experienced contractors to avoid surprise overages. Factor in all costs—materials, labor, permits, fees. And include a 10%-15% buffer for unexpected issues. Carefully assess needed updates like kitchens, bathrooms, flooring that buyers want. Avoid over-improving luxury finishes the neighborhood won’t support. Focus on the best ROI upgrades.
Finance Creatively
Flipping costs big money upfront, so financing your new business is crucial. Hard money lenders specialize in short term, high-interest loans for flippers. Explore private money loans from individuals seeking strong returns. Crowdfunding platforms also connect investors with flippers. Conventional mortgages take too long for flipping needs. But lines of credit or home equity loans also offer flexible capital. Whatever your source, ensure you have adequate reserves for holding costs and overages. Conservative estimates keep you solvent.
Market Your Flip Attractively
Your flip should shine when buyers visit. Declutter and stage each room they’ll use—not just the kitchen or master bedroom. Hire an agent experienced at pricing flips accurately. You want buyers competing, not wondering why it’s overpriced. Time it right based on market cycles. In Illinois, list flips in early spring when buyers are most active. Great photos, video walkthroughs, and 3D tours showcase your flip in the best light so buyers covet it.
Choosing the Right Market in Illinois
Illinois is a large and diverse state, so market conditions can vary greatly by location. Not all areas present equal flipping opportunities.
Factors like home price appreciation, inventory levels, and buyer demand should guide your target geography. Study metrics for neighborhoods in your target metro area to identify promising pockets.
For example, within Chicago, suburban markets like Oak Park and Evanston have seen values rise annually with little housing supply. These areas offer prime flipping potential.
Downstate metro areas like Springfield have less drastic inventory shortages but offer affordability that attracts first-time buyers. Existing homes with renovated kitchens and bathrooms sell quickly.
Smaller Illinois towns or rural counties generally don’t support profitable flipping. Optimal areas have sustained home price growth, strong economic and population growth, and a younger demographic base.
If relocating for deals, choose markets with job growth in fields you have experience in case you need stable income between flips.
Above all, become an expert on 2-3 metro areas rather than venturing across the state. Focused understanding leads to better deals.
Building Your Flipping Team
No successful flipper goes it alone. Surround yourself with reliable talent in three key areas:
Real Estate Agent: A buying agent with deep market knowledge helps you identify off-market deals not widely promoted. For selling, list with an agent experienced at pricing flips accurately and marketing them attractively.
General Contractor: Find a GC with expertise renovating homes similar to your targets. Check references thoroughly. Ensure they have strong subcontractor relationships and can deliver on budget and schedule.
Lender: A trustworthy financing partner is invaluable for securing capital needed to fund your flips. Hard money lenders and private individual investors are ideal.
Beyond your core team, assemble a broader list of specialists: architects, designers, stagers, photographers, landscapers, tradespeople.
Vet each member thoroughly. Reputation and referrals speak volumes. A great team executes your vision and makes profitable flips seamless.
Setting Yourself Apart from the Competition
With house flipping a hot trend, you’ll likely compete against other investors for the best properties. Four tips help you gain an edge:
- Specialize in a niche: Become known as the expert in, say, colonial revivals or brick bungalows. Specialization builds your brand and gets you first dibs from sellers.
- Build relationships: Get to know brokers, listing agents, contractors. Strong relationships lead to deal flow before homes hit the open market. And you will help by promoting a local business and making connections for the long term.
- Act decisively: When you find a promising deal, be prepared to close quickly with your pre-approval ready. Don’t lose out by dragging your feet.
- Add unique value: Look for creative ways to add value beyond the expected kitchen or bath updates. Add ADUs, green technology, accessibility features.
The more you can distinguish yourself through niche expertise, strong relationships, and reliable speed, the more you’ll gain trust from partners to access top deals.
Preparation Is Key
Despite the challenges, Illinois presents a prime landscape for flipping if you lay the proper groundwork. Educate yourself on local markets. Assemble a great team. And approach each deal with realistic assumptions.
The opportunity is massive, with thousands of dated homes primed for improvement. Now is the time for aspiring investors to stake their claim.
With the right preparation and discipline, renovations could be your ticket to real estate riches.
