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Renovating a house for a profit? First, eliminate the 'Yikes'
The single most cost-effective investment you can make to increase the value of your home is to buy a roll or two of plastic trash bags. Stuff them with junk outside the house -- from beer cans to raked leaves.
Nothing could be more common-sense than cleaning up the yard and exterior, right?
"You'd be surprised at how many people don't recognize the importance of doing these kinds of items," says Steve Berges, a real estate investor in Michigan who buys dilapidated houses, fixes them up and sells them for a profit. His advice: When renovating a house or preparing it for sale, spend money on things a buyer can see.
Any successful investor is adept at spotting hidden value, buying low and selling high. That's what Berges does when he scouts properties, generally houses 20 to 70 years old. "One of the things that we like when we drive up to a house is what we refer to as high 'Yikes!' appeal," he says. He defines "yikes appeal" as the state of a house in which a normal person would drive up, say, "Yikes!" and keep on driving.
What a 'Yikes' house looks like
A house with high "Yikes!" appeal has weeds, a boat parked in the front yard and an old car transmission on the side of the house, nested amid beer cans. A rain gutter hangs down. Overgrown shrubs obscure the front windows, creating a dreary interior. People actually try to sell their homes in such condition, creating opportunities for bargain-hunters.
Working the other side of the equation, Berges has written a book called 101 Cost-Effective Ways to Increase the Value of Your Home . The paperback from Dearborn Publishing ($18.95) will be in bookstores in June.
The book lists various kinds of exterior and interior improvements (improving the porch, replacing kitchen cabinets) and ranks each project's "impact value." A one-star impact value means the project won't add to the home's value and might actually lower it; a five-star impact value means the project could potentially add $1.50 or more to the home's price for every dollar spent.
A lot of money is at stake. Homeowners spent $166 billion on home remodeling in 2001, according to the Harvard Joint Center for Housing Studies. More than three-quarters of that was spent on what the Joint Center calls improvements, with the rest going to maintenance and repairs. Another $48 billion was spent on the remodeling of rental properties. Researchers credit the $214 billion in remodeling for preventing the economy from dropping further into recession in 2001. More money was spent on remodeling than on clothing that year.
Researchers discovered that 6.3 percent of remodelers spent more than $20,000 on improvements in 2000-2001 and 2.7 percent spent more than $35,000. Much of that was targeted toward fixing up kitchens and bathrooms.
Protect, improve, appreciate
"Families that spent more on home improvements also realize the greatest rates of price appreciation," the Harvard study said. "In many regions of the country, homeowners recover as much as 80 to 90 percent of the cost of home improvements in the form of higher home values. Little wonder, then, that homeowners spent almost $2,300 on average in 2001 to help protect and improve their most important financial asset."
If you're getting ready to sell a house, you want to be among the homeowners who recover 80 percent or more of their investments in the form of a higher price. Berges says the key is thinking like a buyer. And what do buyers do? They drive up to a house and look at it. If they're not repelled by what they see, they step inside and look around.
Based on that typical experience, Berges formulated the following guidelines:
- Spend money on what can be seen vs. what can't be seen;
- Fix up the exterior first, then the interior;
- Focus first on what Berges calls the "Yikes!" appeal -- clutter, trash and bad smells that drive down a home's value.
"Visibility adds value," Berges says. "The improvements that are most visible are the things you need to focus on." |
