Renovating In A Cooling Market
Very busy right now with clients & the new urbandigs charting system. Postings will be light for next week or so, when enhanced chart system will be launched. Please bear with me! For now, here is a quick renovations tip for a seller looking to spice up their property for resale, in a tough marketplace; dollars & sense!
A: If you bought a wreck for a discounted price or just found an apartment in good, but not great condition, then you'll probably want to renovate. But what if you are looking to flip the property or sell it within the next 2 years or so? What renovations are worth it and what aren't in a cooling housing market? Let's try to answer this common problem! Originally Published July 31st, 2006
Past history tells us that money spent on kitchens, bathrooms, and floors get you the most money back at resale! But thats in a booming housing market, not a cooling one. To find out what renovations pay off in a slowing market, lets try to go into the minds of a buyer who is dealing with less affordability due to higher lending costs (like today), and may have some uncertainty about the market in general. In short, the buyer is very cautious how they spend their money!
Bobby Buyer makes $150K a year, has $150K in cash in banks, and wants to buy a $500K condo with 10% down. OK. Right off the bat he will need about $70K to close on the deal ($50K for down payment + $20K or so for closing costs). That leaves him with about $80K AFTER closing to do what he wants with the property. Chances are he is NOT finding a fully renovated condo for this price so lets assume the apartment needs work! Should he:
A: Renovate the kitchen
B: Renovate the bathroom
C: Renovate the floors
D: Renovate ALL OF THE ABOVE
Tough question. Now lets assume that Bobby Buyer intends to sell the apartment in 2 years, once he satisfies the tax code for primary resident tax exemption of up to $250K. Lets be conservative and assume the Manhattan real estate market will stay flat to down over the next 1-2 years, what renovations would make sense to you?
Here are my thoughts, one by one.
A. Renovate the kitchen - DEFINITELY NOT! It will cost about $20-$25K (min for gut renovation on most kitchens - add 10-15K easily for high end renovation on kitchen) or more to redo your entire kitchen, plus 1-2 months of contracting work that you have to deal with. In addition, kitchens are a very personal room that most buyers like to fit into their own taste. If your renovations conflict with the potential buyers taste, you may NOT get any premium when you go to resell.
Now, given current market conditions and our quick prediction on what the market might be like in 2 years, how are we to expect top dollar for this type of renovation where we cant guarantee the buyer will even like it? We can't! Pass on this given the situation at hand as to me it looks like a high risk (due to high cost), low reward (premium not guaranteed) scenario.
B: Renovate the bathroom - POSSIBLY! You can get away with cosmetic work to the bathroom for relatively cheap. Options include re-glazing the tub, re-tiling the floor, a new medicine cabinet, and a paint job. You don't have to spend $10K on a bathroom if you don't want to and being stingy on this work might make for a good investment at resale. Buyers HATE disgusting bathrooms and showing a nicely refinished bathroom could mean the difference between a bid of $425K and $440K. Dollars & Sense; if you can spend $5K and make a bathroom much nicer than it is now, then DO IT!
C: Renovate the floors - DEFINITELY! I'm huge on hardwood floor resurfacing because of the risk/reward ratio that this renovation offers. I know, you hear risk/reward and you think of gambling or stock trading. Well, thats how I view things. If you can spend $1000-$1250, or $2-$2.50 a square foot for a 500 sft surface area of hardwood flooring (whose apt size probably totals 650 sft), and get a newly finished floor that just shines back at you, THEN DO IT! Trust me, it is night and day for such a little amount of money. When you go to resell, buyers will have a great first impression when they open the door to a bright floor that shines in their face! A good first impression for the buyer is critical when selling a home and equates to a higher bid at resale.
D: Renovate ALL OF THE ABOVE - NO! If it was up to me, I would spend $6,000-$7,000 total on refinishing the floors and re-doing the bathroom as much as possible with the remaining funds. Adding in the kitchen renovation will boost your expenses to almost $30,000 and force you to get $585K or so at resale to break even (taking into account seller fees). It just doesn't add up.
The SKINNY: IN A SLOWING HOUSING MARKET YOU WANT TO DO THE LOW RISK HIGH REWARD RENOVATIONS THAT COULD PAYOFF AT RESALE. THESE INCLUDE FLOORS & BATHROOMS, NOT KITCHENS!
Of course, its entirely up to you and the money you want to spend on your new home. To each his own. Just before shelling out $20-$25K on renovations, ask yourself if you will want to sell in under 2 years. If you do, I strongly suggest cutting this expense down to $7K or under and that to me means floors and bathrooms! After all, spending more money than you want to will only worsen your financial situation and might force you to sell down the road sooner than you would otherwise want to. Not a good recipe should the housing market remain slow and you need to find a buyer fast!
Comments (16)
That's great advice, thanks a lot! As for renovating the bathroom, I found some helpful information on this website: New York Contractors
Posted by Bernadette | August 23, 2006 9:33 PM
It's interesting how you break it down. I like your emphasis on bathroom reno's over kitchen's. Do you think newer appliances (assuming the existing are around 20 years old, but in decent shape,) would payoff at resale?
Posted by Fin | October 6, 2006 2:29 PM
Being fiscally careful is important, but buyers typically will make a buy or pass decision based on one room in particular - the kitchen. While renovating bathrooms is cheaper (typically), the kitchen has much more impact. Even if the renovations are cosmetic, I'd recommend you still focus on the kitchen, despite a cooling market.
Posted by Joshua Dorkin | March 29, 2007 11:36 AM
Where the hell can you find hardwood floors for $2/sqft installed & finished in the city? That's ridiculously cheap...even for standard red oak 2 3/4" plank floors. I doubt $1000 would even pay for the labor...
Posted by some dude | March 29, 2007 12:51 PM
some dude - you missed what I said.
"hardwood floor resurfacing..."
Refinishing cost aprox $2/sft or so...To rip up and install brand new flooring you are looking at aprox $18/sft or so, and that will vary depending on contractor and quality of floor you get,
Posted by Noah | March 29, 2007 1:59 PM
dude, DEFINITELY spell check your posts.
Posted by Butch | March 29, 2007 3:46 PM
Butch - thanks! yea, Im awful with that. Just so time consuming to even write the posts that are what I think is good content I always forget to spell check.
Will try to do so more often. Just corrected those words. Thanks.
Posted by Noah | March 29, 2007 4:11 PM
thanks, if i didn't love the site, I wouldnt give a damn:)
Posted by Butch | March 29, 2007 11:33 PM
How can I find out what the paint colors are in this bathroom?
Posted by Hunter | November 17, 2007 10:17 PM
PS: I updated the #'s to be more in line with todays market and reno costs! Sorry, for the 30 min delay on updating these, for those that read it before I switched the #s!
Posted by Noah | April 28, 2008 10:42 AM
Another possibility: if it's just the kitchen cabinets that need a re-do, it's worth considering having one of the big box stores (e.g., Home Depot) come in and design a reasonably-priced set of cabinets for your kitchen, and just delivering them to you flat-packed -- then getting a non-HD contractor to install them for a few hundred bucks. The contractors I've worked with tell me that they don't require a terrific quantity of skill to install, but Home Depot charges an arm and a leg and a foot to install them. Source the cabinet hardware online (e.g., at HomeAnnex.com) and you can do the non-appliance kitchen work for pretty cheap.
Posted by Thor Hyerdahl | April 28, 2008 11:28 AM
Excellent suggestion Thor! Thx
Posted by Noah | April 28, 2008 11:29 AM
Noah has some great ideas and suggestions. Here'a few of my own after 25+ years in the foreclosure, rental and Tax Deed sales market.
I'm not in New York but In our florida (Tampa Bay Area) market, we're having more luck and quicker turnovers with newer homes and less upgrades required. If you can't pay cash, then stick with the lower priced homes but the priorities for upgrading are still the same.
I've been doing this for over 25 years and with newer homes selling around $50-60 SF at foreclosure sales, it's not a great idea to buy older homes except for rental and holding purposes.
Important to beginners in today's market:
Don't be greedy, be willing to comprise on price and don't keep a loser. The housing prices are literally changing by the week and month in our market and probably nationwide with some exceptions. Keep realistic expectations within a reasonable range for profit.
When you can buy low it's not hard to sell them for under the market at $70-85 Sq Foot and make a nice return on you money.
Another over looked opportunity is trying to sell your own home. I'm a Real estate Broker and don't even attempt to sell my own houses. I list my own and our investors properties but selling is a completely different story. There's too many hungry Realtors out there to waste your time trying to sell your property. Spend you time finding the properties.
Here's my prioities and they fall in line with the earlier suggestions with minor exceptions.
1. Curb Appeal. If you can't get them into house you certainly can't sell them. Most buyers ride by houses well ahead of the showing so make it attractive outside. Make sure they have fresh paint, good looking roof and landscaping so your home has as much or more curb appeal than surrounding homes.
2. Front doors and then Floors are the 2nd and 3rd most important to welcome them inside. Impress them as soon as they open the door.
3. Kitchen upgrade extremely important. New appliances (preferably stainless steel), new countertops (preferably Granite) are a must in today's market.
4. Bathrooms must be clean and sparkle. Make sure the commode seat is new, tiles shine and there are no stains in commodes, tubs and sinks.
Posted by Ed | December 9, 2008 9:40 AM
Great Article! Could not agree more with your points - one quicky that I would throw in is paint. Cheap with a huge impact: Even a quick spray of white paint on some old cabinets if applied correctly will give you "like-new" cabinetry. I recently wrote a post on renovating in a recession that has some additional ideas: http://renovationjunky.com/?p=16
Thanks for sharing!
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