Renovating for fun and profit
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.
could be more common-sense than cleaning up the yard and exterior, right?
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
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.
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."
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
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.