Katrina Up Grade
Hurricane Katrina dumped three feet of water into the Mid-City house Erich and Jennifer Weishaupt had purchased in 2001, leaving the couple with some tough decisions to make. Chief among them was the dilemma similar to that faced by many homeowners in the New Orleans area: Should they take this opportunity to upgrade their home, making the improvements they’ve always desired? Or is it better to restore the home as economically as possible, given the uncertainty of the resale market?
Erich Weishaupt outside his Mid-City home.
The Weishaupts chose the first alternative, gutting their house to the ceiling, removing a wall to open up the floor plan and insulating the house with cellular foam. The couple, both transplants from Houston, felt that they were committed to their new hometown and already had a lot of money invested in their home. They could see that a core group of neighbors also were coming back, which gave them the confidence they needed to forge ahead.
Today, Erich Weishaupt confesses to having occasional worries about their decision because of the city’s crime rate and other problems. But in general he thinks improving the house was the smart thing to do. “I’m still optimistic,” he says. Flooded houses in his neighborhood are selling from $100,000 to $125,000, and the home next door to him sold for more than $200,000, he says, as people willing to do renovation take the opportunity to buy into Mid-City. Weishaupt, an engineer, has gone into the renovation business full time, buying properties to fix up and either sell or rent.
Chris Bonura and his wife, Verena Benker, made a similar decision when it came to renovating their home near Jesuit High School. Bonura bought the 95-year-old shotgun double in 2000 and spent a year remodeling it before he moved in. The hurricane swept 10 inches of water into the house, a disaster the couple saw as a golden opportunity to make the upgrades Bonura had gone without the first time around. For example, they tore out all the drywall and plaster, which allowed them to insulate the house and make improvements to the wiring.
Some of the improvements made to Weishaupt’s home amidst repairing the flood damage. Porch-turned-dining room.
Bonura says he and his wife are encouraged by the activity in the neighborhood, with businesses reopening and new businesses coming on line. He believes the resale value of his house will increase as his neighbors renovate their homes, some of which needed repair work before the storm. “Now people have the money to do it,” he says.
Pat Ryder, an owner of Bernard’s Home Improvements, says most of his clients are also choosing to upgrade. The company restored about 35 homes last year. At the beginning of the year, most of the work was in Jefferson Parish but by April his focus had switched to east New Orleans, Gentilly, Broadmoor and other parts of Orleans Parish.
Ryder thinks his customers chose to upgrade their houses because the structures were old and their owners had desired these improvements long before the storm. People who don’t intend to move back in to their flooded homes generally sell the houses for teardowns rather than go through the trouble and expense of remodeling them, Ryder suggests. Most of his customers plan to move back in once their homes are restored, so they’re putting in the upgrades for their convenience rather than resale value.
WEIGHING THE NEIGHBORS
Only time will tell whether upgrading post-Katrina is the way to go, real estate analysts say. Right now it’s difficult to gauge the resale value of a flooded, renovated house because the market is still in a state of flux. In the meantime, there are a few guidelines to consider as you weigh the merits of pricey Uba Tuba granite and the more prosaic – but less expensive – Formica.
Consider removing the “functional obsolescence” of your home, says Ivan Miestchovich, director of the University of New Orleans (UNO) Center for Economics and Real Estate Development. He cites the example of his sister’s home in Lake Vista, which took four feet of water during Katrina. The house, built in the early 1950s, had the small rooms and lower ceilings common to that era. When she renovated, Miestchovich’s sister made the house more competitive by raising the ceilings and opening the floor plan.
Put your dollars into these more permanent types of improvements, Miestchovich says, rather than opting for the top-of-the-line kitchen appliances that will be outdated in a decade or less.
New Orleans faces the prospect of more vacant lots, Miestchovich says, as homeowners who are at or near retirement age try to figure out what to do with their flooded, older homes. Many of these people lack sufficient capital to pay for renovations, and many of their homes were built quickly right after World War II and are too small to turn into desirable 21st century homes. He says he sees more empty lots every day in the neighborhoods around UNO as older homeowners, tired of waiting for Road Home money, “vote with their feet” and leave, selling their homes as teardowns.
Chris Bonura and Verena Benker in front of their Mid-City home.
The area home resale market has been up and down since Hurricane Katrina, says Wade Ragas, owner of Real Property Associates, a real estate appraisal firm. From December 2005 to September 2006, house prices surged 20 percent to 25 percent, Ragas says. But the trend has reversed and the market has been a lot tougher in the past three months, he adds, especially for homes priced at $450,000 and up.
“We’ve lost a lot of doctors, attorneys and engineers to other places,” Ragas says, resulting in a lack of buyers for more expensive homes. The metropolitan area has also seen an outmigration of registered nurses, teachers and other professionals, many of whom lived in two-income households that could support a hefty house note. Ragas sees some balance being restored to the market in the next year or two, after which we should see some long-term trends.
Chris Bonura used damage as an opportunity to make improvements.
In the meantime, he recommends that renovators looking toward resale put their money into higher-quality, energy-efficient, durable upgrades, such as better hot water heaters rather than expensive cosmetic improvements. You can also improve your home’s chances of being sold in some easy, inexpensive ways, such as simply de-cluttering your rooms, he says (see “Tips” right).
The uncertainty makes for interesting times for real estate agents, says Frank Trapani, president of the New Orleans Metropolitan Association of Realtors. Homeowners and potential buyers are all waiting on the city to get rolling with infrastructure improvements, while the city is waiting for more people to move back. “The city needs to get moving,” Trapani says. Once people have confidence that improvements to schools, roads and other public structures will be made, they will feel better about returning and others will follow them.
Getting those Road Home checks into circulation would also help, says Joy North, a longtime agent with Prudential-Gardner. She says people renovating their homes will be forced to put in upgrades once more new construction comes online or their homes won’t be competitive. “Clients still want granite, wood floors, crown molding,” she says. Fortunately, it’s easier and less expensive than it was in the past to find trendy housing supplies at the big-box home stores, North says; you no longer have to be a contractor to have access to higher-end materials.
North says many New Orleans residents extend the holiday season through Mardi Gras into spring, so she expects to be busy as people finally turn their attention to house-hunting again.
Tips for resale
If you’re concerned about resale value as you renovate your flooded home, keep these tips in mind:
• Remember that first appearances count. Pay attention to the “snapshot” people get when they approach your house: front door, shrubbery, mailbox, etc.
• Some updates are more important than others. Unless they’re buying a gutted house to tear down or remodel, buyers don’t want to put a lot of money into improving a house. Today’s buyers are looking for open floor plans and modern kitchens and bathrooms. Pools, however, can be a liability to some buyers.z
• Use your head, not your heart, when choosing materials as you renovate. You may think paying extra for the most luxurious hardwood floors is worth it, but the buyer might be happy with more moderate flooring and a lower purchase price. Ceramic floors are extremely popular right now since they withstand flooding much better than carpeting or hardwood.
• Be realistic when assessing the value of your home. Expensive upgrades – granite countertops, new appliances – can’t change the fact that a home has only one bathroom or a one-car garage.
• Consider offering “fix-up money” to buyers so they can choose the upgrades they prefer. —J.R.
Source: Wade Ragas, owner of Real Property Associates