For those that are up to the task, home renovations can provide an opportunity to create value, broaden a home’s appeal and, of course, end up with a home finished exactly as desired. Whether it’s purchasing a home in need of TLC or upgrading a current home instead of moving, when done correctly renovations can add upside and attract a wide market of buyers.
Over the years of consulting with our clientele, one point that resonates across price ranges is this: focus on quality consistent with the neighborhood. Decent homes in great neighborhoods sell. Great homes in mediocre neighborhoods? Not so much; at least not at the price the sellers want. As trusted financial advisers for real estate we routinely engage in these conversations with our clients. Thinking about a $150,000 pool and outdoor kitchen for your $500,000 house in a $500,000 neighborhood? Unless the money doesn’t matter, it’s typically better to step up to the next level of home before making that kind of investment. It’s important to keep in mind what buyers are expecting in the price point and area. Most people would love a house with a great pool area, outdoor kitchen and fire pit, but no one will want to pay for it if it’s the only house on the street with those amenities.
There are great “values” all over the Louisville metropolitan area, but buyer beware: many are very easy to get in to, but very difficult to get out of. Just keep in mind that one day the time may come to sell the property so plan ahead to position your home for the widest market possible. By beginning with the end in mind you can spare yourself a lot of heartache. In our intitial consultations with clients we sometimes hear “We planned this as our ‘forever’ house, but now we have to sell because…”. Translation: “We’ve over-improved or designed the home to be so special-use that no one will pay us anything near what we have in the property”. It’s a difficult situation to see people in and there aren’t always easy solutions.
Tools of the trade.
The easiest solution is avoiding the problem in the first place and picking the right neighborhood can help save you from yourself. Making sure that your neighborhood will support your renovated value is a critical step that too many people skip before they get carried away on Houzz and turn the contractors loose. A comprehensive market analysis for the as-improved home is key to avoiding surprises when life happens and it’s time to move. Also, keep in mind that Louisville is largely a traditional market and homes that fit the market norms have a much wider margin for error. Contemporary homes are great, but don’t be surprised if most buyers pass in search of something more typical for the market. In Louisville’s most prestigious neighborhoods adding square feet can add some of the quickest return on investment since the value per square foot can greatly exceed the cost of adding the space. For smaller projects, new lighting, flooring and paint can completely transform a house and provide a quick face-lift and return. Keep in mind that when it’s time to sell buyers will expect the entire property to be in good condition. If there’s an old greenhouse or shed in disrepair that aren’t part of the renovation plans, have them removed. Nobody is going to say “Where’s my pergola”, but if it’s there it needs to be in good condition.
Home buyers that tackle renovation projects enjoy a couple of key advantages that aren’t typically found in the conventional housing market. First, there are relatively few buyers who will tackle a true renovation project (many people like the idea of a project, but very few follow through). Second, the sellers of these projects typically begin with over-inflated opinions of value based on comparisons to sales of their neighbors’ superior homes. Over-pricing leads to much longer marketing periods before the price corrects which can stigmatize the property. The already thin market for the property gets thinner as buyers begin to think “There must be something wrong with that house if no one else has bought it yet”. Third, and most important, there’s a wide market of buyers for the finished product and when done correctly, recently renovated homes command premium prices at the top of the market range generating a return on the time and money invested.
With the right team in place, each project can be an enjoyable and rewarding experience. Watching our clients successfully breathe new life into these great, old homes for new families to enjoy is one of the more satisfying parts of our business.