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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.

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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 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 $176 billion on home remodeling in 2003, 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 $57 billion was spent on the remodeling of rental properties. About 45 of the renovations involved upgrading interior spaces, such as kitchen and bath remodeling, or changing the structure of the house, such as adding on a room.

The recent refinancing boom helped fuel the growth in home improvements, the researchers reported. The study said that homeowners cashed out $333 billion in home equity between 2001 and 2003, nearly triple the level of the previous three years. Citing estimates from the Federal Reserve Board, the study said that roughly a third of the proceeds from cash-out refinancing between Jan. 1, 2001, and June 30, 2002, went to home improvement spending.

Protect, improve, appreciate

If you're getting ready to put your house on the market, the goal of remodeling, of course, is to recover most or all of your investment in the form of a higher selling 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.

 

 
 
-- Updated: May 3, 2005
     

 

 
 

 

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