The recoup cost depend on how much you took the seller off his "market" price for those bathrooms/bedrooms remodels.
Lets say you walked into a house that was listed for $450k and you got the price down to $425k, then post inspection you knocked it down another $400k for the bathroom that needs repairs/remodel. You then put that $25k into the bathroom. You are ahead.
I think that's some kendra todd math there. It's been well discussed in another thread that in a typical real estate market, remodeling pays back at best 75-85% of the investment.
Its not kendra math. If the seller dropped the price from "market" (whatever it is at that point), then it is ahead of the market by having a remodel that was essentially paid for by the seller.
As far as all the hoopla about what adds the most value to the house I do not see anything that really adds value dollar per dollar better then a bedroom or a garage. Anything else cosmetic purely adds an easier sell then a better market price.
As far as all the hoopla about what adds the most value to the house I do not see anything that really adds value dollar per dollar better then a bedroom or a garage. Anything else cosmetic purely adds an easier sell then a better market price.
We have to be careful when assessing such valuations not to be tricked by inflation. Most people ignore this, and it's exactly the type of thing that produces comments like "real estate always goes up-up-up." If you do any remodel and then sell the house the next week, you will lose money on the project. That means the return is always negative, regardless of how long you will live there.
What I think confuses people is when they do a remodel and then live in the house a little bit. If you put $10k into a remodel, which increases the value of the house by $8k, you've lost 20%. But if you hang onto the house for 5 years, you can expect inflation to increase the resale value of that upgrade to around $10k again. Most people do the math and say that the renovation didn't cost anything because they eventually recouped the costs. In reality, they lost out on 7% gains for 5 years on that money. So the real cost was $4k.
In short, most people either don't understand the time value of money, or refuse to accept it.
Its not kendra math. If the seller dropped the price from "market" (whatever it is at that point), then it is ahead of the market by having a remodel that was essentially paid for by the seller.
If the house sold for $400k, then the market is $400k. The seller didn't "pay" for they buyers bathroom upgrade in any way shape or form.
If you believe that, then I'd really like to be negotiating with you.
If you can get a bargain from a bad negotiator then you can make money after doing a renovation, but you would make more money by not doing the renovation.
But sometimes a buyer just won't go near a place that needs updating. You may not get your initial investment back by redoing a bathroom or kitchen, but you might be able to sell it, rather than have it lingering on the market for who knows how long?
But sometimes a buyer just won't go near a place that needs updating. You may not get your initial investment back by redoing a bathroom or kitchen, but you might be able to sell it, rather than have it lingering on the market for who knows how long?
True enough. but in the scenario provided, there was already a buyer in the mix. I was just countering the "I've added instant equity" logic. I think that tactic worked from 2004-06 - but it's not the norm. And as Alan points out - if you get the house at a discount you could probably make money by doing little or no work. Cosmetic fixes are cheap and sometimes quite convincing.
But sometimes a buyer just won't go near a place that needs updating. You may not get your initial investment back by redoing a bathroom or kitchen, but you might be able to sell it, rather than have it lingering on the market for who knows how long?
Exactly right, Ira, and I made this same point in another thread here. That being said, however, there is a really easy way to get buyers to flock to such a property--a really LOW PRICE! You advertise it as a fixer and blow it out cheap. Buyers are all looking for a good deal, and if the price is low enough, they will buy and fix it up themself (or hire it done).
My house was a fixer when I bought it (it was priced accordingly), and it still is in many respects. I am doing most of the work myself as time and $ permits (with a quality level of the materials & workmanship that far exceeds those used in the original construction). I did NOT take any cash out when I re-fi'd a couple of years ago, nor have I gotten a HELOC. These certainly would have been much quicker avenues to get my house done, but they would have increased my monthly payments which was unacceptable to me. I view my house as a place to live, not as an investment. Therefore, dumping several thousand $ into it and expecting/hoping to get it back someday just doesn't make any sense to me.
Comments
Its not kendra math. If the seller dropped the price from "market" (whatever it is at that point), then it is ahead of the market by having a remodel that was essentially paid for by the seller.
As far as all the hoopla about what adds the most value to the house I do not see anything that really adds value dollar per dollar better then a bedroom or a garage. Anything else cosmetic purely adds an easier sell then a better market price.
We have to be careful when assessing such valuations not to be tricked by inflation. Most people ignore this, and it's exactly the type of thing that produces comments like "real estate always goes up-up-up." If you do any remodel and then sell the house the next week, you will lose money on the project. That means the return is always negative, regardless of how long you will live there.
What I think confuses people is when they do a remodel and then live in the house a little bit. If you put $10k into a remodel, which increases the value of the house by $8k, you've lost 20%. But if you hang onto the house for 5 years, you can expect inflation to increase the resale value of that upgrade to around $10k again. Most people do the math and say that the renovation didn't cost anything because they eventually recouped the costs. In reality, they lost out on 7% gains for 5 years on that money. So the real cost was $4k.
In short, most people either don't understand the time value of money, or refuse to accept it.
Oh, no - most people are really good at 10's too
If the house sold for $400k, then the market is $400k. The seller didn't "pay" for they buyers bathroom upgrade in any way shape or form.
If you believe that, then I'd really like to be negotiating with you.
True enough. but in the scenario provided, there was already a buyer in the mix. I was just countering the "I've added instant equity" logic. I think that tactic worked from 2004-06 - but it's not the norm. And as Alan points out - if you get the house at a discount you could probably make money by doing little or no work. Cosmetic fixes are cheap and sometimes quite convincing.
My house was a fixer when I bought it (it was priced accordingly), and it still is in many respects. I am doing most of the work myself as time and $ permits (with a quality level of the materials & workmanship that far exceeds those used in the original construction). I did NOT take any cash out when I re-fi'd a couple of years ago, nor have I gotten a HELOC. These certainly would have been much quicker avenues to get my house done, but they would have increased my monthly payments which was unacceptable to me. I view my house as a place to live, not as an investment. Therefore, dumping several thousand $ into it and expecting/hoping to get it back someday just doesn't make any sense to me.
Just ask any buyer of a Conversion/condo/townhome with granite and stainless steel to distract from the mold behind the walls....