Fixer-Uppers : What to Fix
You've bought a house, a fixer-upper you can make some money
on. What improvements and repairs should you make? First of all,
you need to know this before you buy, as I explained in another
article. Before and after you buy, though, you need to have some
simple rules with which to start analyzing possible fixes.
Return on Investment
A young couple was very disappointed when I told them there
house was worth $110,000. "We just put $40,000 into remodeling
the kitchen!" they told me. I looked at the kitchen. It
was nice. They had added $10,000 in value to the house by spending
$40,000. This is a classic example of a bad return on investment.
With fixer-uppers, you have do things which give the most
"bang for the buck." Aim for a three-to-one return
on improvements. If you're going to resurface the driveway for
$1000, it better raise the value of the home by $3,000. Even
when you're just guessing, keep this three-to-one formula in
your head, if you want to invest safely.
How to Fix a Fixer-Upper
With things like new curtains, you can't really estimate the
increase in value. What you can do, though, is group together
the many small repairs and improvements you are considering,
and imagine how the house will look when you are done. Then you
can estimate whether you will have increased the value enough
to justify the cost.
It often is in the small details that you'll get the best
return on investment, so look at these first. A new mailbox,
flowers on the porch, a raked yard and trimmed trees - $30 total
if you do the work yourself - can make a big difference in the
first impression potential buyers have. First impressions are
important.
Other small investments that pay big include shiny new switch
covers (less than $1 each), shelves, a birdhouse, new doorknobs,
new light fixtures, curtains, new rocks or wood chips on outdoor
paths, new faucets, new wood stain on decks, and general cleaning.
Stand in front of the house and imagine what it might look like
with various small improvements (flowers, wood-rail fence, birdbath,
etc.).
The Big Fixes
Obviously, there are things that just have to be repaired.
The basic systems must function. Improvements, though, should
be subject to the three-to-one rule. You may have to get creative
here. An investor friend of mine once had a wall put up, and
for less than $1000 created a new bedroom, probably raising the
value of the house by $8,000. Now that's a good return on investment.
Bathrooms and kitchens are important. A $1000 updating of
a bathroom can add $4000 in value to a home. Spend $2000 wisely
in the kitchen (New fridge, re-finish the cupboards, add a garbage
disposal, etc.), and you can add $8000 to the sales price of
the house. Look for 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, there are many potential improvements
that can be worth doing. These include adding a carport, new
doors, fences, gazebos, sheds, painting, carpet, benches, a new
closet, a new toilet, a new stove, a shower/tub surround, and
trees or bushes. The bottom line is the bottom line: be sure
anything you do returns more than you spend, preferably three
times as much.
I hope you found this article on fixer-uppers useful. For
more on how to find the money for these types of projects, read
the article on hard money lenders.
For more on fixing and flipping houses visit my newest web site,
www.TipsForFlippingAHouse.com, and sign up for the free Tips
For Flipping A House Course.
|
|
