Renovations – Maximizing your client’s budget

Stop!  Don’t “gut” it!

In most cases, completely tearing something out and starting over is going to be much more expensive than seeing what you can make work.

Cabinets – If the layout of the kitchen/bathroom works, try keeping the cabinetry.  It’s amazing what a few coats of paint can do to dated kitchen cabinets.  This also eliminates the need for a plumber.  Check out this tutorial from Remodelaholic for tips and tricks to on painting cabinets.

Countertops – If your client’s neighborhood can support the investment in a nice stone countertop, it’s well worth it.  Future buyers love three things: granite countertops, stainless steel appliances, and hardwoods.  The home values in some neighborhoods cannot support stone, so you may recommend a nice faux stone laminate.  Avoid trendy edges for a classic look.

Paint – The most common mistake I see in renovations is using the wrong sheen of paint.  The more glossy the sheen, the less forgiving it is to imperfections.  Please stress this to your clients!  Even in new construction, walls are not perfect and any sort of sheen is going to show every tiny imperfection.

  • Walls – flat
  • Trim – semi-gloss
  • Cabinets – semi-gloss
  • Wainscoting –  satin or semi-gloss

Types of Investment Property

Almost any type of property can be an investment property.  From condos, townhouses, and single family homes to apartment complexes and commercial property, almost anything can be an investment.

Intended Term

  1. Short Term – Many investors, buy, renovate, and sell the property at a profit.  This allows them to move on an reinvest their money quickly while minimizing or avoiding paying major interest charges on leveraged money.
  2. Long Term – Some investors buy properties to use as rentals.  Using the collected rent to pay down loans frees up equity to leverage other projects or if saved, results in property owned free and clear that can continue to be rented for almost 100% profit or can be sold for a lump sum that can be used as a down payment on another investment.
  3. Medium Term – This involves a blend of the first two options.  Generally, this will involve renovating the property and renting it for a limited time.  This is often done in apartment complexes or condo buildings where renovations can be completed to one unit or building at a time, yielding a higher return for renovated units and resulting in a higher class property, fetching a higher sale price.

Type of Structure

  1. Single Family Home – This is the traditional house.  All one unit, when purchased as an investment property, single family homes are typically renovated and either rented or sold.
  2. Duplex/Triplex/Quadplex – These homes are independent structures split into multiple units that each have a separate exterior entrance.  Most often, these properties are renovated and rented at a profit.  The owner may or may not occupy one of the units.
  3. Condo/Townhouse – These can make great investment properties as the exterior maintenance is usually the responsibility of the Home Owners Association (HOA) and is paid for via a monthly fee.  They are very similar to single family homes and are an affordable way to get into the investment property market.  They make wonderful first homes (with investment property potential) as well.
  4. Apartment Complex – This would be a commercial transaction.  There are many options for investing in an apartment complex.  To determine what is the highest and best use, speak with a commercial real estate broker.

* The definition of residential properties varies by state.  In North Carolina, a single structure with 1-4 units is considered residential.  Five or more units puts a property into the commercial category.

Buyers & Agents Shouldn’t Forget About Resale Value

Whether new construction, recently renovated, or in need of some TLC, resale value should be one of the top conversations between a buyer and an agent.  Unfortunately, it’s often overlooked.  Why should you consider resale value before even making an offer?  Your future may depend on it!

Minimizing risk while maximizing returns through an analysis of current market data yields wise investments and more importantly, knowledgable homeowners and investors.  This resale-centric approach continues to encourage astute purchases for families and investors alike.

Three Types of Homes:

New Construction – Upgrade costs in new construction can pile up.  Builders often have limited finishing options, but an unaffiliated contractor can provide a greater variety.  Discussing upgrade options before making any decisions is the key to a well informed purchase.

Recently Renovated – These homes typically sell at the upper limit of their market range.  Homes that show very well (clutter free, fresh paint, new/refinished flooring, updated lighting, etc) sell very well.  Buyers looking to settle down for the long haul are in good shape here, but growing families or people who move every 5-7 years, may need to consider the resale value more seriously.

Fixer Uppers – Finally, in a home needing TLC, agents can offer important insight into what values a neighborhood can support.  This helps everyone involved by maintaining realistic expectations of resale value, and not over-improving for the neighborhood.   This is particularly important for buyers who plan on spending fewer than 5 years in the property.

Types of Updates:

Things that cannot easily be changed include the location of the home and the view.  These two factors, particularly the location, greatly affect market value.

Things like the layout, square footage, and number of bedrooms and bathrooms can be changed with fairly significant renovations, which if well researched and budgeted can earn a profit.  Adding a third bedroom will typically yield a far greater return than adding a sixth bedroom.

Lastly, the easiest update is the finishes.  Finishes include the flooring, cabinets, paint, countertops, doorknobs, moldings, etc.  These updates vary greatly in their budget, but again, well researched and budgeted renovations of the finishes can yield a significant return on your investment.  This is where the law of diminishing returns applies to real estate and as a result, each individual property needs to be uniquely analyzed for it’s current value and it’s potential resale value.