You’ve bought a fixer upper home you can make some money on. Where do you start? What repairs or improvements must be done? Actually, you need to know this before you buy. Start with the end in mind, and have a plan to get there. No matter if it’s before or after you buy, though, there are some simple rules for analyzing what needs to be done.
Return On Investment
Years ago a real estate agent was sitting across the kitchen table from a very disappointed young couple. They were told their house was worth $110,000. They complained that they had just put $40,000 into remodeling the kitchen!” It was nice. Maybe they added $10,000 in value to the house but spent $40,000. This was a classic example of a bad return on investment.
With fixer upper homes, you need make changes that give the most “bang for the buck.” Try aiming for a three-to-one return on improvements. Before you resurface the driveway for $1000, ask if it will raise the value of the home by $3,000. Even if it’s a guess (especially if it’s a guess), keep this three-to-one formula in your head, if you want to invest safely.
How To Fix Fixer Upper Homes
With new curtains, flowers, ceiling fans and such, you can’t really estimate the increase in value for each item. Instead, group together the many small repairs and improvements you’re considering, and imagine how the house will look when you are done. Then estimate whether increase in value will justify the cost.
Often, it’s in the small details that you’ll get the best return on, so look at these first. New mailbox, flowers on the porch, a raked yard, and trimmed trees – $35 total if you do the work yourself – can make a big difference in the first impression potential buyers have. This is important.
Other small investments that more than pay their way include new switch covers, shelves, a birdhouse, new doorknobs, new light fixtures, curtains, new faucets, and new wood stain on decks. Stand in front of the house and imagine what it might look like with all the improvements (flowers, wood-rail fence, birdbath, or any changes).
Of course there are things that have to be repaired. Basic systems need to be in working order. Improvements, however, should be subject to the three-to-one rule. You can get creative here. I heard of someone who put a simple wall up, and for less than $1000 – probably raised the value of the house by $8,000. That’s a good return on investment.
Bathrooms and kitchens are important to buyers. A $1000 bathroom remodel can add $4000 to a home’s value. Spend $2000 wisely in the kitchen (new fridge, re-finish cupboards, add a garbage disposal.), and you can add $8000 to the value of the house. Look for the changes which are most universally valued (don’t paint the kitchen pink because YOU like that color), and be sure you get a decent return on investment.
Depending on the fixer upper homes you look at, there are many types of potential improvements that may be worth doing. These include adding covered parking, new doors, fending, painting, carpet, benches, a new closet, a new toilet, or a new stove. The bottom line is the bottom line: be sure anything you do returns more than you spend, preferably three times as much.
I’d be happy to show you fixer uppers in the area. Get in touch with me and we can talk.