Depending on your location, location, location, appropriate renovations can bring big returns when you sell your home.
For every smart financial move I’ve ever made, I’ve always managed to balance it out with a dumb one. Having done various degrees of renovations to several properties over the past decade (and repeated some work after Katrina), there is no question in my mind that I’ve got the zero-profit investment strategy down to a science. Still, I’ve learned a few things along the way, and if someone would only invent a time machine, I’m sure I could go back and get it wrong in a different way.
One of my more dubious decisions was to tear out a driveway (that coveted off-street parking) and replace it with a garden. The money it took to do that could have instead gone toward renovating a circa-1980 crapola kitchen. The only way to make sense of that investment decision is to say that it boosted my deposits in the Bank of Karma and that someday, somehow, the Earth Mother will compensate me for replacing a sea of concrete with soil, grass, elephant ears and palm trees.
There were some obvious smart moves, such as introducing central air conditioning technology into a house with window units or converting a tall attic into a 300-square-foot bedroom. Basic math says that this made sense, with the build-out cost at $30 per square foot in a neighborhood where living space was selling for more than $100 per square foot.
Probably the smartest renovation investments I made were in do-it-myself jobs. This usually involved a lot of time, trial and error –– and, most important, getting a friend with skills to help me.
But these days, I just don’t have the stomach for it. In fact, I barely have the stomach even to live amidst renovations. I’m all renovated out.
And apparently, renovation fatigue has become something of a syndrome in the local real estate market. According to Margaret Stewart, a real estate agent with Latter & Blum Inc./Realtors, the Katrina disaster and the economic downturn have worn buyers down. They want to turn the key and immediately feel at home.
“Renovated does sell because people are tired, and people are scared of the cost of renovations,” Stewart says.
In other words, local buyers don’t want to face a crusty old laminate-laden kitchen. They don’t want to walk into a mildewed bathroom with fixtures that haven’t been in style since Leif Garrett’s heyday. (Leif who? Exactly.)
“People will pay more for a renovated house rather than deal with the hassle of renovating it,” Stewart says.
Imagine that a buyer has two twin houses to choose from, but one has a timeworn kitchen, and the other has a lovely new kitchen and costs $15,000 more. The buyer generally will choose the more expensive one. Buyers typically are paying that extra $15,000 over 30 years. At a mortgage rate of 6 percent, that’s about $90 per month. The cost is negligible compared to the hassle of coming up with the money to pay for the renovation after you’ve bought the house, not to mention the potential horrors of living through an unpredictable kitchen renovation.
Real estate agents say that it is vital, however, to scale the investment to the neighborhood — which is to say, market expectations. For example, the sort of swank bathroom renovation that may be de rigueur in an upscale section of town would likely be inappropriate for a house that sits between a blighted tenement building and a 24-hour liquor store in a low-demand neighborhood.
For a modest house in a modest neighborhood, a modest renovation that conveys newness should do the trick. For a palace in a palatial neighborhood, a modest renovation could be a lost opportunity to boost value and market appeal.
Market veteran Tommy Crane of Tommy Crane Group Inc. Realtors says there are some renovations that almost always pay off, such as refinishing wood floors. Adding a bathroom to an under-served house also tends to be a winner.
Other investments are a lot dicier. Crane says that installing a swimming pool in your backyard is likely to cost $30,000 to $40,000, but the return will be closer to $10,000. And some people don’t want the risk and maintenance worries associated with pools, so pools tend to narrow your potential market. The rare exceptions, he says, are in very upscale neighborhoods where a pool is almost expected.
When it comes to historic houses, Crane warns against installing vinyl siding and modern windows that don’t match the style of the house. “That’s a real turnoff,” he says.
Crane stresses the tried and true: curb appeal. That entails making appropriate investments in landscaping and painting. But when it comes to painting, inside or out, make color choices that “appeal to the masses.”
So if you like maroon, brown and orange together, maybe save those colors for your wardrobe.