As a real estate investor, your main objective is creating a property that has value. That value can be through fixing and flipping or renovating and renting. When you go to list or rent, you’ll want to arrive at a number that makes money for you but also makes sense for the property itself. Once you have obtained a property, it’s all about improving its worth. Many factors determine a property’s worth—some of which can be enhanced through your renovation efforts. Let’s look at what will influence your final price.
Before you do anything to a property, you need to understand the comps. You don’t want to out-renovate the area because you won’t be able to recoup everything you put into it. Look at the houses that most recently sold, focusing on the final selling price and the condition of the property. This strategy can help you plan where to invest renovation dollars to have the best return.
Location is, of course, one element you can’t change. While the location may be great for some because it’s close to work or activities, that doesn’t mean it’s a sought-after place to live. When appraisers factor in location to a home’s worth, they look at the quality of the schools, employment opportunities, and proximity to shopping, entertainment, and other amenities.
Besides these location-specific attributes, the home’s closeness to highways, utility lines, and public transit also are factored into the value of the location. Location is something you should consider very early in the process. You don’t want to buy and flip a home in a stagnant neighborhood—you want to find a high-demand area.
The size of the home influences its value. More space means more bedrooms and bathrooms, which equates to a higher price. What’s vital here is the home’s livable space. The square footage of the home might be 2,500, but if only 1,500 is usable, then the price is going to align with livable space, not total square footage.
Age and Condition
The age of the home does matter, even if renovated. An old home may have old infrastructure like electrical and plumbing, so be prepared to deal with that. If you do have to update these functions, then you are providing the new buyer with peace of mind. Age becomes less of a reason someone would pass on the property.
Any buyer wants to see a well-maintained home. If it’s move-in ready, they will be more likely to pay a premium. So, what will make it move-in ready?
Upgrades and Updates
There are lots of ways you can upgrade a home, but not all renovations are equal. You can find out which renovations will give you the most boost by checking out the Cost vs. Value Report from Remodeling Magazine. Here are some highlights:
- Bathroom remodel (midrange): 70.1%
- Entry door replacement (steel): 91.3%
- Major kitchen remodel (midrange): 53.5%
Even though most things related to kitchens and bathrooms sell houses, the value that you recoup is not as high as you may think. Yes, you should definitely renovate those areas, just be cost-conscious, so you aren’t putting so much into these spaces because you are only going to get a limited recoup of costs.
The Local Market
Even if you have an updated house in a good neighborhood, that doesn’t mean your sale will happen in a snap. It has a lot to do with the local market and how many total properties are for sale. These local market conditions determine the supply and demand equation. As an investor, you are probably making purchases in areas that are already hot or warming up so you should be in a seller’s market with more ability to get the best price quickly.
These are the main factors that will determine the right listing price for your property. You should also consider economic indicators like the stock market’s health and job growth as well as other financial circumstances such as interest rates. By considering all these elements, you can make the smartest choices to grow your personal wealth.