July 24, 2019
Episode 24: Home Improvement
We discuss the good, bad, and the ugly of home improvement projects, including how they affect real estate prices.
Obviously carpet and paint are the easiest ones. Lipstick on a pig, right? And sometimes putting lipstick on a pig helps it sell.
ABOUT THIS EPISODE
Every homeowner wants to improve what they've got, and home improvement projects run the gamut from painting the walls to adding a new upstairs. Regardless of the size of project, all home repairs can go a long way toward improving the house and increasing its value.
In this episode, we list some of the best home improvement projects for ROI and feature real estate experts discussing the ramifications of tackling home repairs the right way.
The Houzz article discussed in this episode: https://www.houzz.com/magazine/this-is-how-much-people-spent-on-home-renovations-in-2018-stsetivw-vs~121684347
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JON: Lowe’s and Home Depot are the largest home improvement retailers in the country, each with over 2,000 locations nationwide. Last year, Home Depot’s revenue was $108 billion, which is probably a hair more than most real estate teams rake in. In short, home improvement is a big and profitable business. And it’s no mystery why; not just any store can supply you with the right axe for the job, nor does every Wal-Mart or Target have an entire section devoted to paint.
JON: As any do-it-yourselfer can tell you, most projects require about a dozen more trips to the home improvement store than you would initially expect. Multiple trips to Home Depot are such a common Saturday occurrence for me that there’s probably some kind of mathematical equation I could figure out to calculate how many trips until I’m done.
JON: It’s the height of summer and the kids have been out of school for long enough for everyone - them and their parents - to get restless. It’s the perfect time to put them to work tackling those big home improvement projects, and to put some money back into your house.
JON: Hello and welcome to Shop Talk: The Real Estate Show. I’m Jon Forisha and this week we dig into home improvements and the effect they have on real estate.
JON: It’s easy to see why someone would want to improve their home. It’s their living space, but it’s also likely the most expensive thing they own. Natural appreciation is nice, but incrementally improving the living space can have a big effect on how much the overall house is worth.
JON: If you’re not looking to sell the home, then putting money back into it could help you refinance. Corey Wesley is a Mortgage Loan Originator with Cherry Creek Mortgage, and he usually handles the first step in the homebuying process. Here’s Corey:
COREY: See, anytime you add an improvement or value to your home, it's going to increase its appraisal value. And depending on what that improvement is, it will have a different effect. I always, when I get a question like this from a client, I always say, look, I'm happy to give you my answer, but I'm also gonna send you over to your real estate professional, your realtor, and get their perspective too. Just because there's so many different, you know, opinions and variables in this, but if you add something like a swimming pool, I think it's going to have a little bit less value than if you upgrade your kitchen and modernize your, you know, modernize the kitchen or the upstairs bathroom or, you know, finish your basement or something like that. Anytime you add a higher level of utility to your home, I think personally that adds more value. Not everyone values a hot tub or a swimming pool. Some people really value it, others don't. So I think some of those things are less effective. When comes to increasing your home's actual market value.
JON: Home renovation website Houzz has done a lot of home improvement research, and we’ve linked to their most recent study in our show notes. In 2018, they found that 83% of homeowners who renovated their house did so using cash savings. 37% paid for the reno with a credit card, which is up from 33% in 2017. These renovations are calculated improvements, and they’re not cheap: the median investment in a kitchen renovation was $14,000 in 2019.
JON: Not all home improvement projects are created equal. While flowers out front might look really nice, they likely won’t have much of an impact beyond curb appeal. A remodeled kitchen, though, will definitely turn heads and convince interested parties to whip out their checkbooks. Depending on your local climate, AC units and furnaces can be a necessity, but along with them come other concerns like attic insulation and the condition of your pipes. Old roofs are pretty much non-negotiable, and though a yard full of green grass might not make sense in your climate, it’s usually the expectation.
JON: John Sebree is the CEO of Missouri REALTORS, an organization with over 20,000 members. When asked which home improvements to invest in, he had this to say:
JOHN: Well I think most people will tell you bathrooms and kitchens, I mean, remodeling a kitchen is not inexpensive, but you know, putting a coat of paint and maybe fixing the floors and that kind of thing is not so bad. But you know, I think in our HGTV world when people, it floors me, I've purchased a lot of houses and um, I can walk in and I can see through the mess, but most people can't. So it occurs to me the least expensive thing you can do is related to curb appeal. Do some landscaping because if you don't get them in the door the first time, then what's it really matter how much you spent on finishing a basement or updating a bathroom. So I would say you get your most bang for your buck by making it look good from the curb to begin with. And then get them inside and do the quick and easy things like, you know, paint the bathroom, add a new vanity, things that aren't terribly expensive. I've seen people with the pink and green bathrooms. Did find a way to make them look pretty cool based on other things they do to it. You know? Otherwise you're looking at a 30 or $40,000 thing and why didn't you do that while you lived there?
JON: As much as you’d like to gut your kitchen and install wood floors, the ROI question quickly rears its ugly head. How will you ever convince your spouse that this project is worth the thousands it requires to do it right, if you can’t even say for sure that you’ll get a good return on investment once it comes time to list?
JON: There are many factors that go into answering the question, the first of which is how hot is your market? If you’re in a place like the Bay Area where people will fall all over themselves to buy a spare drawer they can curl up in at night, there’s a little less pressure to really fix things up. If, however, your market is slow to move, then a newly-renovated bathroom might be just what the doctor ordered - if, in this case, you’re hoping a doctor buys your house.
JON: According to financial website Investopedia, the addition of a wood deck, window replacements, or any upgrades made to the kitchen or bathroom will net you the biggest return on investment. These numbers range from an average of 70-85% recovery of your initial investment. And it’s easy to see why - a nice kitchen is either a necessity or at least an aspirational thing for new homeowners. They think that a pleasant and spacious kitchen will make them cook more, and if they cooked more, just imagine all the other new healthy habits they’ll pick up!
JON: And really, a new house is perfect for aspirational goals. When someone’s shopping for a house, they’re trying to picture themselves living there, but they’re also trying to plan who they would be if they lived there. Will they be a person who enjoys going to the coffee shop on the corner? Will they be a person who walks the dog through the park every evening?
JON: When planning any home improvement project, you have to consider the appeal of what you’re doing. If you’re not planning on selling the house and you’re purely making the improvement for yourself, then go nuts! Paint that bathroom black if you want to, put a giant slide in the backyard. Just do so knowing that you’ll likely kick yourself when it does come time to sell.
JON: Michael Hellickson is the Founder and CEO of Club Wealth, where he coaches real estate agents on how to build and automate their business. Here’s Michael:
MICHAEL: Obviously carpet and paint are the easiest ones, right? Lipstick on a pig, right? Yeah. And sometimes putting lipstick on a pig helps it sell. The reality is though, you know, I deal with a lot of sellers that don't want to do any home improvements. They just want to get rid of their house. Then the next one. So rather than trying to convince them to do a lot of home improvements, normally I'll just say, look, we can sell it as is. You have a choice. You can do the improvements. Here's the ones that you can do and here's kind of how it will impact your value and we'll be able to get you this much or just so has, yes, let me just sell it as is, get your cash as quick as possible and out you go.
JON: If you or your clients are like most people, you’re renovating with the intent to sell. In that case, paint your house in neutral tones and make your home appealing to the widest possible net of people. Big garages are attractive to a huge swath of people, but it becomes a different story if a custom ventilation system for woodworking takes up over half of it. Such specific cases can either help or hurt your listing - it all depends on if you can find the right buyer.
JON: In all of the data compiled by Houzz, an interesting finding was that only 6 of the top 50 metros experienced a year over year increase in renovation spending. In fact, in 2018, half of the top 50 metros actually saw a drop in median renovation spending.
JON: The likeliest reason for this is that all signs are pointing to a more moderate rate of economic growth than we’ve seen in the past few years. While that doesn’t mean a recession and certainly doesn’t mean anything to do with a housing bubble, many homeowners are finding it harder to justify fourteen grand on a shiny new kitchen.
JON: Regardless, home improvements will always be a big business, especially here in America where we so highly value our personal space and private property. As a society, we can agree that the wood paneled walls and shag carpets should be relegated to the past, and you know from living in your house what kinds of improvements will really elevate it to the next level. Whether you’re renovating for yourself, refinancing, or sprucing up the place with the intent to sell it for a nice profit, there are few home improvement projects that will actually hurt your bottom line, so long as you go at it smartly and don’t just start swinging hammers.
JON: John Michailidis is the Owner and Broker at Real Property Management of Sarasota & Manatee in Florida. If you’re not sure where to start with improving your house, John has these words for you:
JOHN: Put light bulbs in all the sockets. If the plug plate is cracked go spend 79 cents and put a new one in. It's real easy to make any property at least appear fresh. Just clean it, man. Just make it fresh. It doesn't cost a lot of money. Cut the grass, trim the hedges. Now you would say as a property manager, that's your job, and you're right. It's our job to facilitate it. But if the owner doesn't give us the money, I'm not fronting the money, and you will be surprised at how many owners push back and it's like, seriously, man, come on. Somebody's got to live here. Would you want your mama living in this house as it is?
JON: That’s it for this episode of Shop Talk, thanks for listening! If you enjoyed this episode, you can subscribe to us and rate us on your podcast player of choice. Join us next time for a discussion with John Sebree, CEO of Missouri REALTORS.
JON: Shop Talk is a production of The CE Shop.