Which Remodeling Projects Result in the Highest Payback for 2014 vs 2015

 By Don Petrasek  of InvestWell

January 31, 2015

As you work through your home remodeling projects, I’m sure you’re always wondering whether you’re spending your budget in the right places…especially if you bought the property to fix up and then immediately resell.

Remodeling magazine just published their 2014 Cost vs Value Report.  They also created an outstanding online tool that will really help you understand which home renovation projects are going to payback the best in your area of the country.

Some Budget Drainers:

  • Home Office Remodel projects returned less than 50 cents on the dollar.  It appears as though a significant portion of the cost for this item is in cabinets and other fixtures that buyers just aren’t willing to pay anywhere near full price for.
  • Sunroom additions returned only slightly more than 50 cents on the dollar.  Certainly a nice to have, but usually not a lot of square footage and buyers are apparently recognizing that.
  • Master Suite Additions returned only 56% of the cost which initially was a surprise to me.  But when you consider the average cost of this project in the United States (around $100,000 for a mid range addition) it starts to make more sense….in many areas this project could represent 25% or more of the house’s total value.  Premium master suites are nice and sell houses for sure, but there’s a limit to the premium that buyers will pay for this feature.  And in most cases, the seller’s choices and taste aren’t going to exactly match the buyer’s.

Some Great Places to Invest Your Dollars:

  • Entry Door Replacement.  Steel entry doors returned almost 100% of the amount invested.  Fiberglass doors returned about 70 cents on the dollar.  Not surprising – you can make a big change in curb appeal for a relatively small investment by replacing entry doors.
  • Kitchen Remodels returned between 75 cents to 83 cents on the dollar.  No surprise here – kitchens and bathrooms sell houses right? Bathroom remodels were in about the same range, but bathroom additions returned only about 60% of the cost – probably due to all the dollars you have to sink into mechanicals to create a bathroom.
  • Garage Door and Siding replacements returned from 78% to 87% of the cost.  Again the curb appeal factor is at work.  I also think that buyers tend to overestimate the cost of exterior repairs (probably because most won’t attempt these jobs themselves) and when they see brand new siding and doors they are willing to pay a premium.
  • Wood Decks added a significant amount of value, returning up to 87% of the cost.  However, using composite materials shrunk the return on investment to as little as 65%.

As you set up your fixer upper house projects, make sure to refer back to current Cost vs Value reports.  They are valuable aids in terms of helping you make decisions on what projects to tackle and which not to as well as what material.

 

Which Remodeling Projects Result in the Highest Payback for 2015

Don Petrasek  of InvestWell

January 21, 2016

 

The Remodeling Magazine 2016 Cost vs Value report is here and once again is a great resource for real estate investors who purchase and renovate fixer upper houses. The report includes both costs and expected returns for a number of common home remodeling projects and you can even download a report for your city that includes job costs, resale value, costs recouped and comparisons.

 

As you put together your renovation plan, you’re almost always faced with the dilemma of choosing from countless ways to improve your property with a limited budget.  The Cost vs Value report can help guide you toward investing your project dollars wisely.

 

The Remodeling Magazine has a video overview provides some great overall direction on where to put your money. Take a few minutes and to watch it now: Some highlights:

 

Attic Insulation, a project that wasn’t measured last year, debuted at #1 on the list of best returns with a 116% return on investment.  It also was the only project that returned more than invested.  The key – low investment ($1268) on a high perceived value item.

 

All but one of the top ten best returns were exterior projects.  As I mentioned in my review of last year’s report, you can’t overestimate the value of curb appeal.  High return projects included manufactured stone veneer (93% return), exterior doors (both entry and garage doors 91% return), siding (78%), decks (75%) and roof replacement (71%). The lone interior project in the top ten was minor kitchen remodel (83% return) – which isn’t a surprise to anyone who has ever sold a house.

 

The lowest returners were largely major additions.  Master suite addition (64%), bathroom addition (56%) Back up power generator (59%).  Be very careful about getting into major renovations on a property you plan to sell right away.  In some cases, it might make sense to add another bedroom or bathroom, but keep in mind when you add these projects you’re going to dramatically increase your timeline and the overall complexity of getting the house market ready.

 

Some projects showed up in both the best returns and worst returns categories – it all depends on what type of materials you use.  Engineered siding returned 78 cents on the dollar, vinyl only 67 cents. Wood decks returned 75 cents on the dollar, composite decks only 57.

 

STILL DROWNING? …..HELP IS HERE! BANKRUPTCY SOLUTIONS TO FORECLOSURE

We all know a friend for whom real estate once, long ago, seemed to be a smooth sail to retirement.  Sure the investor’s course required a lot of hard work: endless hours acquiring properties, weekends swinging a hammer, and evenings rushing to mow lawns before dark; but they were on track to find the calm waters of a fat equity position.  Then came the storm of 2008, that drove so many investors onto the rocks of tightening credit, falling property values, and increasing costs.  Eight years later many of these investors are still treading water and looking for the “recovery” Washington keeps bragging about.  Perhaps that investor is you.  I’m writing about a program that can restore your dream without abandoning the properties you have worked so hard to get.

If your portfolio looks like its been through the storm, Chapter 11 of the Bankruptcy law provides a mechanism for businesses to reorganize.  People hear Chapter 11 and think only massive corporations can use the law-not true!   Investors with no equity, whose income can’t support their payments, but own an otherwise viable real estate business are eligible for Chapter 11 relief to erase debt, reduce payments, and keep their properties.

We are using Chapter 11 to force banks to negotiate mortgage terms and balances.  Yes, we can change the terms of a first mortgage and reduce balances.  Even if the bank objects!

Consider this example.  An investor built a multi-unit portfolio prior to ‘08.  Total mortgage debt was $6.5 million, total rents about $18,000 per month.  The bankruptcy plan will erase $4 million in debt, restructure the remaining $2.5 million at 3.5-4.5% over 30 years.  This plan allows the investor to keep his property, reduce his debt, and lower his interest rates.  The business coming out of bankruptcy, will allow the investor to successfully repay the remaining $2.5 million and take a reasonable income for managing his properties.

Chapter 11 isn’t for everyone.  The portfolio needs to be underwater by significant amounts.  We are recommending not less that $300,000 of debt in excess of the market value of the portfolio.  The investor’s income must not be able to pay the mortgages anyway, and the investor must not have significant non-retirement assets.  The investor’s credit will be hurt significantly for a few years.  Legal fees and costs are significant and the court case will last a long time.  But if you qualify, Chapter 11 may reduce debt and restructure payments.

 

 

For more information contact:

Richard E. Hackerd

Attorney at law

Practicing in:

diverse areas of law Real estate Law,

Business litigation to serious felony defense

55 Public Square, Suite 2100 Richard@Hackerd.com

Cleveland, OH 44113 216.210.6484 m

866.201.0249 fax

The “Hard Hat” in real estate Law!