Look At Comparable Properties
Don’t over-renovate. Only spend on upgrades that add value.
The three key factors in valuing residential real estate are location, location and location. This is important to remember when figuring out what improvements to add.
It is very easy to over improve a property and end up with a product that is beautiful, but overpriced for its location. While some buyers might spend a small amount more for a more improved property, they will not likely spend a significant amount more if there is nothing in the area selling for that high of a price.
Remember, not all improvements add value. Such things as home offices, concrete patios and sports courts generally do not add value to a property. Be careful not to spend your money on things that will limit the number of people interested in the property.
Look at houses that are on the market in the area. Which ones are selling the fastest? What improvements do they have in common? Now look at the ones that have sat on the market the longest. What do they have in common? Learn a lesson from both of these kinds of properties to determine how to maximize your return on home improvements.
Establish a Strong First Impression
Have you ever a watched television real estate show, like “House Hunters” on HGTV or “Million Dollar Listing” on Bravo? The one thing that all of these shows have in common is that when they are showing a house, they almost always show the potential buyer’s first impression when arriving at the property.
It is also clear that no matter what is going on inside a house, a negative first impression upon arrival is hard to come back from. The lesson is to make sure that your property has great curb appeal, so that the potential buyer looks forward to seeing what is inside.
First, you need to make sure that the structure itself is as nice as it can be. Power wash the siding, freshly paint all trim work, make sure that window casings are in good condition, etc. Doing easy cosmetic fixes can make a big difference. Some suggestions for things that will give you a big bang for your buck include:
- Dressing up the front door by painting it a contrasting color
- Replacing old exterior hardware like door knobs
- Making the entryway symmetrical
- Installing outdoor lighting
- Planting flowers and plants
- Installing a new mailbox
- Adding shutters
Most of these are not very expensive, but along with your marketing plan they will make a huge difference in attracting the right buyer for the best price.
Kitchens and Bathrooms Sell the House
In the highly competitive residential home sales market, you cannot have a dated kitchen or bathroom and expect to get top dollar for your property. Not only are these improvements the key to getting a good price for your house flip, but they are crucial for getting people interested. They will surely decrease the days a property spends on the market.
According to US News, the average kitchen remodel in the United States runs $16,000 and the average cost of a bathroom makeover is $10,000. These are some of the best renovations for resale as they will make purchasers fall in love with your property, and pay for themselves.
Not every kitchen and bathroom needs a complete overhaul, but almost all require some updating. Objectively look at the existing kitchen cabinets. Do they need to be replaced, or can they be refinished, refaced or painted?
Just remember, when improving a kitchen, it is important to make it safe and family friendly. For example, make sure that all electrical outlets are properly grounded and are the required distance from water sources. Make sure the floor is slip resistant and that counters have rounded edges.
With regards to bathrooms, it may be possible that the existing tile can be used, and the fixtures such as toilets and sinks replaced. Updating a shower door, or hardware in the room may be an easy fix. Like a kitchen, any work done must insure that the room is safe.
Don’t Impose Your Personal Style
Focusing on neutral design elements will appeal to the largest buying audience.
Nothing turns buyers off more than bad taste. Of course, what is bad taste is in the eye of the beholder? Be very careful on imposing what you believe is your extreme good taste on a property.
For example, you may think that bright green granite is a beautiful material for your kitchen counters, but most people will not agree with you. Big ticket items, like countertops, bathroom fixtures, carpeting and wall finishes should be in colors that appeal to the greatest number of customers.
Accordingly, soft, neutral colors should almost always be used. There is room to use bright colors and unusual materials as accents for the purpose of drawing attention to things, but they should never be predominate. They should always be touches, not overwhelming amounts.
Don’t invest more into the property than what the property is worth.
Flippers frequently get so wrapped up in projects that they stray from their business plan and drastically overspend on a property. When this happens, they are completely shocked when they do not make a profit on their flip.
It is very easy to lose track of costs and over improve a property, in a desire to deliver a certain wow factor. While you do want that wow factor, you need to be careful about how to achieve it.
Before starting a house flip, make sure you identify where you are going to spend a lot of money and where you are not. While there may be cost overruns, that is what the contingency fund is for. If you end up overspending your rehab budget and contingency fund, you will end up losing money on your house flip.
Contractor expenses must also be closely monitored. While many contractors are honest, not all of them are. Contractors frequently overbuy materials such as sheetrock, plumbing items, tile, etc. and get paid for the materials by the rehabber. The contractor may then return some of the overbought items to the store where purchased and keep the money.
In other cases, a contractor may have a dumpster placed at a rehabber’s home, but allow others that he is affiliated with to use it. The rehabber is then stuck paying extra for the increased weight. Trust your contractor, but also, keep an eye on the bottom line. Remember – the end goal is to sell, so focus on the best renovations for resale.