How to Leverage Your Louisville Home as an Asset

Greg: Welcome to this edition of the Louisville Luxury Homes podcast series brought to you by Jon Mand with Lenihan Sotheby’s International Realty. Jon, as always, good to see you.

Jon: Thanks, Greg, good to be here.

Greg: I wanted to talk today about a question that I know real estate agents get all the time. It’s when a client says, “Great, I’ve got this house, what if I do this? What if I add this? Do you think this is a good idea?”

There are so many things that people want to add or take away from their Louisville home and sometimes it’s really not in the best interest of the future sale of the property, is it?

Jon: Yeah, absolutely. It’s interesting. Part of our job is kind of this post-purchase or pre-sale, I guess some time during the home ownership process, of just helping our clients out and advising them along the way, when it comes time to do a remodel projects or just re-configuring or add a pool or not adding a pool. All of these things, people look to us for that advice because they want to know, ultimately, if we’re going to sell this in a year or five years or 20 years, what’s going to make sense in terms of the…  are we going to get our money back? That’s the underlying concern that everybody has. Will somebody pay me for what I’m getting ready to spend money on?

Greg: I like that people frame the question that way because often they don’t actually mean it. Some people want to spend the money just because they’re going to get something they like an they’re not worried about the eventual cost, but then a lot of other people really, really are and need to be. It really breaks down pretty quickly into what someone’s goal is.

Cost Of Project Versus Enjoyment And Return

Jon: Yeah, absolutely and that’s part of the process. I’ll go through it with people and I’ll say, “Look, I understand that you want to install a $200,000 pool and pool house in your $500,000 home. Or you want to completely change the look and feel of your house to something that’s just Frank Lloyd Wright style” or something just ultra-contemporary or that sort of thing in Louisville which is a very traditional market. If the money doesn’t matter and it’s important for you and the enjoyment of their family to have it that way, then absolutely go for it. I just caution, don’t expect the next person necessarily to be willing to pay for that when you get too far out on the margins here on these remodel projects and things.

A $200,000 pool and pool house on a half-million dollar home, if you’re going to be there a long time and that’s what your family wants and it makes sense for your situation, go for it. But again, the pool is not going to move the needle that much on the resale of that home because most buyers in that market are looking at houses and they don’t expect to find an elaborate gunite pool with a limestone surround and pool house with cabana and a fire-pit and all of these things. It would be great to have it, right? It’s one of those things that, if it’s there, the buyers are like, “Hey, this is great, we’ll take it”, but they don’t want to pay for it. Just going into it eyes wide open is important.

Greg: Sometimes, I’ve seen some people who sort of make decisions that only will they not get their money back, or they haven’t thought about whether they’ll get their money back with whatever addition they’re doing, if they go too far to one direction, they might actually not make the money back they invested, but it might make the house so difficult to sell that it might actually move backwards where it’s like a double-whammy.

Jon: Yeah, absolutely and that’s because most … Again, you want you start with the end in mind, if the end is going to be an eventual re-sale of the property. You can certainly go so far one direction and spend a lot of money going that direction, that the next person comes in is going to have to spend even more money going back the direction you came from. Not only did you spend the money but people are now, when you put it up for sale, are deducting additional value because they’re looking at it going, “Well, gosh, now I’ve got to spend $100k or $200k or $300k or $50,000”, whatever the dollar amount is, they’re looking at it and saying, “To get it back to a floor plan that functional for my family” or a style that has some wider market appeal” that you’re actually moving the opposite direction.

Greg: I know you’re approach. You really like to look at someone’s house as an asset, right? Are there some things that by and large, and every house is individual and every location is individual, but some projects, by and large that would be good for someone’s asset?

Treat Your Louisville Home As An Asset

Jon: I think, as you go through it, the biggest return on the investment is typically going to be the painting, which seems so silly but a lot of buyers can’t really see past a paint palette. Painting, flooring, investing in new flooring and then lighting fixtures. Those things can dramatically change the look of a property. Then once you get past that low-hanging fruit, bathroom remodels, kitchen remodels, all these things are great, but again, it’s not a one-size fits all answer. It depends on what did you purchase the property for? What does your kitchen look like now? What is the kitchen that you’re planning to put in? Is it all stainless steel and crazy contemporary cabinet styles or it is traditional? And then ultimately, what’s the expectation in the neighborhood?

If you’re in a Cape Cod home here in St. Matthews and you want to put in a gorgeous, custom kitchen with top of the line handmade cabinetry and exotic countertops and all this stuff; it’d be great, but you may be getting out of line with what the market expectations are, depending on the price point and the location. Those are just things to watch out for.

One area that I see that is an opportunity, if you’re getting into a bathroom or any kind of major renovation, where you’re doing kitchens, bathrooms, or just moving walls around and stuff, any opportunity to add above-grade finished square footage is a big plus. Again, the primary metrics that appraisers are going to use on valuing a property is they’re going to look at the above-grade square footage and then use that based on the sale prices in the neighborhood based on their above-grade dollar sold per square foot and calculate the value that way. Any opportunity, if you’ve got unfinished attic space above the garage that you can go blow out a bedroom into or if you’re going to remodel a second floor bath and you can incorporate some of that space, anything like that that’s an easy pick up on square footage is hugely valuable because you’re just increasing that factor that they’re using on the multiplication, right? They calculating dollar per square foot times the number of above grade square feet. If you can make that number bigger … Again, it depends on location, right? If you’re in a neighborhood where things are selling in the low $100, say it’s $125 a foot and to do what you want to do is going to cost 150 a square foot to build it, well then maybe it’s not a good idea.

If you’re in a high-end home and it’s $300 a square foot is the average selling price and to do what you want to do, is $200 a square foot to build it, well they hey, that’s a pretty easy math. Even I can figure that out, right?

Greg: I don’t know if I can but I’ll take your word for it. Sometimes, I know it costs more money but like you said, if you’re doing the bathroom, you can spread that cost across a bigger addition, right? If you add a dormer, say over the garage. It’s a little bit more expensive to do the project but you’re getting the value of the bathroom plus the extra square footage, so sometimes, like you’re saying, it helps boost your asset if you can wrap a couple of projects into one.

Jon: Yes, definitely. Again, it really depends on the location too on all of these projects, in that, what you can do on a house in the Highlands or inside the Watterson Expressway, let’s say, if you want to go off to margin or the other in terms the style of finish or changing the floor plan that works great for you but might not be as functional for the next family that’s going to be looking at the house.

Location Of Your Louisville Home

You can get away with more closer into town than you’re going to be able to further outside of the Gene Snyder Expressway. That’s because people are willing to look past some of these things. It may be a little bit more contemporary than then typical market product but if it’s inside the Watterson Expressway, people will look past it and say, “You know what, we can paint this. We can do this. We’re willing to look past some of these things.”

If you’re way out in Shelby County, Oldham County, getting further away from town, you’re not going to find people that are as forgiving because the location is obviously more easily replicated in those markets or sub-markets than it is inside the Watterson.

Greg: I might point out that this is one of the reasons, I think, is invaluable to have a really knowledgeable Realtor on your team because you go into houses all the time and you know what the sub-markets look like and what someone can get away and what someone needs to do to get their house up to market, right?

If I bought at house … My goodness, my house is almost … I’ve had it almost 20 years, which is hard to believe. I know that when I put my house on the market there are a few things I need to do just to get it ready, because I haven’t done them yet. I have to protect my investment. I really like the way you framed this as an investment. I have to protect my investment, spend some money to get it up to to snuff, not necessarily improve it but just get it where it should be.

Jon: Absolutely it’s the deferred maintenance items and all that stuff. It’s better to address those things while you’re living there. If you’re going to have to put a new kitchen in to sell your house or you’re going to have to re-finish the hardwood floors or you’re going to have to re-configure the layout, why not do it early on in your ownership of the property and get to enjoy it?

I’ve sold a couple of homes personally, where we fixed it all up exactly the way we would’ve wanted it when we were selling it. I knew in order to sell it, I had to do these things and you get it done and you’re like, “Wow, that would have been great, if for the last five years we could have enjoyed that, but instead we’re just fixing it up so that we can sell it to the next person.”

Kind of thinking through that process, if it’s going to have to be done in order for you to sell the house, why not go ahead and do it, get to live in it, enjoy it a little bit and kind of a different approach to it, I guess, than what we typically see.

Greg: So if someone’s listening and they have some questions about your advice, what you think needs to be done or maybe shouldn’t be done depending on the situation, how do they find you?

Jon: Cell phone’s great, 502-417-2837 or they can always just go to jonmand.com.

​​​​​​​Greg: Wonderful, see you on the next episode.