In a perfect world, every property you buy will quickly appreciate in value. However, gone are the days when you can buy a property on the first of the month and sell it on the 15th at a profit without putting any work into it. In today’s market, you not only need to buy in the right location, but you also need to do things to enhance its value. Spending money alone will not give you the return you are looking for. If you are trying to maximize the value of your home, you need to do the right work.
When you are deciding what work to do, it is important to remember that what is best for your property may differ from your personal tastes. You may think a pool would make a nice touch or wall-to-wall carpet is essential, but that may not be what will get you the greatest return for your investment property. As an investor, you need to base any remodeling decisions on what will give you the best return on your investment and what will make your property more marketable – all while increasing its value. Fortunately, there are some tried and true improvements that most buyers look for that can help you determine how to best spend your money.
Regardless if your buyers are inclined to cook or not, most buyers look at the kitchen when considering making an offer. Accordingly, most gatherings end up happening in the kitchen. If the kitchen is updated, the rest of the house will feel the same. Like everything else you do with your improvements, you need to base your work on the neighborhood, price range and target market you are looking to hit. Stainless steel appliances and granite counter tops can work for a more expensive house, but you will not get a great return if you are doing work on a moderately priced rental property. A marginal upgrade to the counter tops, cabinets, flooring and appliances (in that order) is where you will see the greatest return.
Many investors feel that custom cabinets and finished movie rooms are things that buyers look for instead of focusing on practicality. After working on the kitchen, the next room you should look to improve is the bathroom. Kitchens and bathrooms aren’t glitzy, but they hold appeal to buyers. There is only so much you can do to a bathroom, but a nicely coordinated tub, toilet and sink will go a long way. Spending the extra money on a nicer toilet or upgraded tiles will have more of an impact on almost anything you can do in the living room. The reality is that once you get to the bedrooms and living area there is usually not much to the space other than the four walls and the floors. The kitchen and bathroom is where you can make your home stand out and where you can add value.
Painting and flooring can be an added perk, but most buyers will have their own opinions on what to do in those areas. You can spend money putting down new carpets, but if the buyers want hard wood floors they will quickly rip them up. Painting is a nice way to freshen the place up, but it won’t do much in terms of long term value. These are more cosmetic items and will be much more work than they are worth. Instead, the area you should focus on is on the exterior of the property. Seemingly little things like the doors, siding and the windows add hidden value to savvy buyers.
Anyone who has purchased new, quality windows knows that they are not inexpensive. They also know the impact they have during the winter months and how easy they are to clean. Buyers can add the cost per window and if yours need replacing it will hamper the value. The properties that go for the highest price are the ones where a buyer can move right in without doing any work. Making the expense of the windows, a new front door and new siding will not only add value, but make your home stand out from every other house on the market.
Improvements such as these are great for the short term but will also hold their value for many years. Things like a new roof, windows, siding and even a front door can easily last you at least ten years before you need to do anything to them. Conversely items such as a new pool, hot tub on the deck and specific fixtures and appliances can be hit or miss depending on the buyer. There are many buyers, particularly in Northeast states, that will only use a pool in the summer and do not want the work and expense that a pool requires. Sure, they are great in the summer but will do nothing for the value for the other eight or nine months of the year. If they have to end up taking it down it will actually hurt your value instead of the objective of increasing it.
Any work you do is not on a dollar for dollar basis. Just because you put in $20,000 worth of work doesn’t necessarily mean you increased the value by that amount. If you don’t do the right work you may end up wasting precious capital and not getting the return you are looking for. If you focus on the kitchen and bathroom you can’t go wrong but even that requires the right improvements. Throwing money at a property alone will not increase the value.