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
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
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.