The Rg BLOG
Remodeling Cost versus Value
As a listing agent I regularly get asked about the value of upgrades. Specifically, will a particular improvement increase the sale price enough to justify the cost?
The answer is, it depends. The biggest returns are going to be for a home who’s condition is below the norm for the neighborhood. If most of the homes in the area have tile floors, the vinyl will be a disadvantage. On the other hand, it will be hard to recover the cost of adding granite counter tops to a home where most of the competition has Formica.
As a rule of thumb you can start by consulting statistics complied by Remodeling Magazine which has results for specific areas of the country. Click here to download results specific to Austin.
It’s kind of interesting that the highest return is for a basement remodel, so I have to wonder how they collected their data for Austin. The lowest return is for addition of a sun room.
If you’re interested in property values in your neighborhood and an opinion on your specific project, give me a call and I’ll be happy to share what I know.
929 54th Wrap Up
We sold the house at 929 E. 54th a few weeks ago, finishing a successful re-hab. Final results were about a 10% annualized ROI. Not bad, but a little lower than we hoped for given the amount of risk involved. On the other hand this is a lot better than current alternatives like the stock market, the bank or cash.
As a review, here’s what the house looked like when we bought it. The arches on the front were made of 1/4″ plywood, and the carport on the right had been enclosed to make a low ceilinged room / workshop. Inside it was a 3/1 with a very unusable layout.
We worked with Scott Cason of the Austin Rebuild Team who came up with a new floor plan including a 400 ft2 master suite addition. Once we tore off the fake facade and converted the carport back to the original configuration it regained it’s classic charm.
Scott completed the interior following a mid-centrury modern theme that won rave reviews.
Our biggest challenge in marketing the home was the number of unimproved properties in the neighborhood. Although some potential buyers were looking for a more established location, others saw opportunity for property values to appreciate to match the surrounding areas.
While the new owners are happily making the home their own we are looking for our next project. If you’d like more information about this type of investment you can check out the resources on our web site or contact us for more information. We’ll be happy to answer any questions.
Staging for Sale
Remember the 60-second rule: That’s all the time you have to create a winning first impression. Here are some simple to significant ways to maximize your home’s appeal.
Exterior
- Keep the grass cut and remove all yard clutter.
- Weed and apply fresh mulch to flower beds.
- Apply fresh paint to wooden fences.
- Tighten and clean all door handles.
- Clean windows inside and out.
- Powerwash home’s exterior.
- Ensure all gutters and downspouts are firmly attached and functioning.
- Paint the front door.
- Buy a new welcome mat.
- Place potted flowers near the front door.
Interior
- Evaluate the furniture in each room and remove anything that interrupts “the flow” or makes the room appear smaller. Consider renting a storage unit to move items off-site.
- Clean and organize cabinets, closets and bookshelves.
- Clean all light fixtures and ceiling fans.
- Shampoo carpets.
- Remove excessive wall hangings and knick-knacks.
- Repair all plumbing leaks, including faucets and drain traps.
- Make minor repairs (torn screens, sticking doors, cracked caulking).
- Clean or paint walls and ceilings.
- Replace worn cabinet and door knobs.
- Fix or replace discolored grout.
- Replace broken tiles.
- Replace worn countertops.
Special details for showings
- Turn on all the lights.
- Open all drapes and shutters in the daytime.
- Keep pets secured outdoors.
- Buy new towels for bathrooms.
- Buy new bedding for bedrooms.
- Replace old lamps or lampshades.
- Play quiet background music.
- Light the fireplace or clean out the ashes and light a candelabrum.
- Infuse home with a comforting scent, such as apple spice or vanilla.
- Set the dining room table for a fancy dinner party.
- Vacate the property while it is being shown.
Understanding the buyer
As the seller, you can control three factors that will affect the sale of your home:
- The home’s condition
- Asking price
- Marketing strategy
However, it’s important to note that there are numerous other factors that influence a buyer, and you need to understand these consumer trends when you enter the sellers’ market. The more your home matches these qualifications, the more competitive it will be in the marketplace. Your real estate agent can advise you on how to best position and market your home to overcome any perceived downsides.
Location
Unfortunately, the most influential factor in determining your home’s appeal to buyers is something you can’t control: its location. According to the National Association of REALTORS(r), neighborhood quality is the No. 1 reason buyers choose certain homes. The second most influential factor is commute times to work and school.
Size
While some buyers want to simplify their lives and downsize to a smaller home, home sizes in general have continued to increase over the decades, nearly doubling in size since the 1950s. Smaller homes typically appeal to first-time home buyers and “empty nesters,” or couples whose children have grown up and moved out.
Amenities
Preferences in floor plans and amenities go in and out of fashion, and your real estate agent can inform you of the “hot ticket” items that are selling homes in your market. If your home lacks certain features, you can renovate to increase its appeal, but be forewarned: That’s not always the right move. Using market conditions and activity in your neighborhood as a gauge, your agent can help you determine whether the investment is likely to help or hinder your profit margin and time on the market.
Practicing good seller’s etiquette
Let’s face it: When your house goes on the market, you’re not only opening the door to prospective buyers, but also sometimes to unknown vendors and naive or unqualified buyers. As with any business transaction, there is an expected protocol to how sellers, buyers and their respective agents interact. Should you find yourself in a sticky situation, alert your agent so he or she can address and remedy the problem.
The aggressive agent
When your agent puts your house on the market, typically all promotional materials state clearly that your agent is the primary contact for buyers and buyers’ agents. However, sometimes a buyer’s agent will contact a seller directly to try to either win over their business or cut the seller’s agent out of the deal. This is not reputable behavior and you should report it to your agent immediately if it happens to you.
The unscrupulous vendor
Have you ever started a business or moved into a new house and suddenly found your mailbox full of junk mail? Unfortunately, this also can happen when you put your house on the market. When you sell your home, it necessitates all kinds of new purchasing decisions and less-than-ethical vendors are keenly aware of this. Though MLS organizations enforce rules on how posted information is used, some companies have found ways to cull information from various sources to produce mass mailing lists. If you find yourself regularly emptying your mailbox of junk, let your agent know. He or she can tap the appropriate sources to prompt an investigation into the matter.
The naïve buyer
Yard signs, Internet listings and other advertisements can generate a lot of buzz for your home. Some prospective buyers – particularly first-timers – will be so buzzed to see your home that they’ll simply drop by. If this happens, no matter how nice these unexpected visitors are, it’s best not to humor their enthusiasm by discussing your home or giving an impromptu tour. Instead, politely let them know that your real estate agent is in charge of scheduling tours and provide them with the agent’s contact information. If you attempt to handle these surprise visits on your own, you might inadvertently disclose information that could hurt you during negotiations down the road.
How to Price to Sell
The asking price you set for your home significantly affects whether you will profit in the sale, how much you will profit and how long your home will sit on the market. Your real estate agent’s knowledge of the overall market and what’s selling – or not selling – will be invaluable in helping you determine the price. The objective is to find a price that the market will bear but won’t leave money on the table.
Here are some points to consider:
Time. Time is not on your side when it comes to real estate. Although many factors influence the outcome, perhaps time is the biggest determinant in whether or not you see a profit and how much you profit. Studies show that the longer a house stays on the market, the less likely it is to sell for the original asking price. Therefore, if your goal is to make money, think about a price that will encourage buyer activity (read: fair market value).
Value vs. Cost. Pricing your home to sell in a timely fashion requires some objectivity. It’s important that you not confuse value with cost – in other words, how much you value your home versus what buyers are willing to pay for it. Don’t place too much emphasis on home improvements when calculating your price, because buyers may not share your taste. For instance, not everyone wants hardwood floors or granite countertops.
Keep it simple. Because time is of the essence, make it easy for the buyers. Remain flexible on when your agent can schedule showings. Also, avoid putting contingencies on the sale. Though a desirable move-in date makes for a smoother transition between homes, it could cause you to lose the sale altogether.
High Tech Home Search
I’m experimenting with a new home search product that’s pretty interesting. It combines information on homes for sale with other information about the community. The company that developed the product calls it ‘Lifestyle’ data.
For instance, you can add schools, shopping hospitals or other locations that you might want to consider when you search for a home. You can also add custom locations, for instance your work address.
Here’s an example of a map that shows a one mile radius around all of the Central market locations in the city.
The idea is that you can create a search that combines the characteristics of the home you’re interested in with other needs, such as schools, distance to work, and shopping.
There are lots of other features, so it takes a bit of exploring to understand the capabilities.
Click here if you’re interested in taking a look. I’d like your feedback on what features you find useful.
12 Reasons Why Real Estate is Better Than a Mutual Fund
If you’re a Realtor(R) or investor in Austin you probably know Wayne Morgan and the Austin Institute of Real Estate. Here’s a copy of an email that I recently got from AIRE with a list of reasons why he thinks real estate is such a great investment. Interesting observations.
Twelve Reasons Why Real Estate Is Better Than A Mutual Fund
First of all, there is nothing mutual about a mutual fund. Usually the only person making money is the person who sold it to you.
Additionally, to help break it down, here are the reasons why I think real estate is a better choice:
Mutual Funds: You have to use your own money
Real Estate: Use OPM
One of the keys to wealth is using other people’s money, especially when rates are low.
Mutual Funds: Bank won’t loan on MF
Real Estate: Lenders compete for business
Call your bank and tell them you found a smoking hot deal on a MF and that you can buy it for 60% of its real value, and then see what they say. Look in the Sunday paper; lenders are competing for your real estate loan business.
Mutual Funds: Give your money to someone else
Real Estate: You control others’ money
In a MF purchase, you give your money to someone else and they control it and spend it however they want. In real estate, you control their money and spend it however you want.
Mutual Funds: No cash flow
Real Estate: Cash flow positive
While real estate does not ALWAYS produce cash flow, mutual funds never do. I prefer RE for this reason.
Mutual Funds: Capital Gain tax
Real Estate: No Capital Gain tax
When you trade via a 1031 tax deferred exchange, no tax is due at time of sale.
Mutual Funds: No depreciation
Real Estate: Depreciation deduction allowed
Can you depreciate a MF? No. Can you in real estate? Yes! Even if it increases in value, you can claim a tax deduction for the property improvements.
Mutual Funds: No appreciation velocity
Real Estate: Appreciation velocity
Let’s say you have $10,000 to invest. If you buy a MF, what is it worth? $10,000. Let’s say you put $10,000 down and buy a $100,000 piece of real estate. What is it worth? $100,000. If they both go up 10% in the following year, what is each one worth? The MF is worth $11,000 and the RE is worth $110,000. The larger the asset, the more gain via appreciation – in other words, more velocity.
Mutual Funds: Potential zero value
Real Estate: Never zero value
All investments fluctuate in value, but real estate will NEVER go to zero. There may be times when it is worth less that you paid for it, but it is never worth zero. Mutual funds can lose all their value and become worthless.
Mutual Funds: Hope management is good
Real Estate: You manage the property – you know it’s good
Mutual funds are invested in the stock market. For stock to rise, management needs to be good, which causes share prices to rise. So, I have to hope that whoever controls my money picks companies with good management. Poor management results in reduction in share prices. In RE, I manage others’ money andcontrol my outcome.
Mutual Funds: Pay commission when purchase
Real Estate: GET paid!
When you buy a MF, you pay a fee. When you buy RE, you get paid the fee. Nice plus.
Mutual Funds: Buy with no cash or credit? NO.
Real Estate: Buy with no cash or credit? Yes!
You are not buying a MF without cash and/or credit. You CAN buy RE without cash or credit.
Mutual Funds: YOU pay for Mutual Fund
Real Estate: Someone else pays for your real estate
That’s it. Although no investment is ideal, and they all have advantages and disadvantages, I prefer real estate for these reasons above.
Want to know more? Attend a free lunch preview and see if the 2011-2012 Investing Coaching Program is for you. Lunch previews are October 11, 18 and 25. Register here or call us at 512-453-0900 for details and to reserve your spot today.
I took Wayne’s course and really enjoyed it. Highly recommended if you’re new to investing.
