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You've bought a house, a fixer-upper you can make some money
on. What improvements and repairs should you make? First of all,
you need to know this before you buy, as I explained in another
article. Before and after you buy, though, you need to have some
simple rules with which to start analyzing possible fixes.
Return On Investment
A young couple was very disappointed when I told them there
house was worth $110,000. "We just put $40,000 into remodeling
the kitchen!" they told me. I looked at the kitchen. It was
nice. They had added $10,000 in value to the house by spending
$40,000. This is a classic example of a bad return on investment.
With fixer-uppers, you have do things which give the most "bang
for the buck." Aim for a three-to-one return on improvements. If
you're going to resurface the driveway for $1000, it better
raise the value of the home by $3,000. Even when you're just
guessing, keep this three-to-one formula in your head, if you
want to invest safely.
How To Fix A Fixer-Upper
With things like new curtains, you can't really estimate the
increase in value. What you can do, though, is group together
the many small repairs and improvements you are considering, and
imagine how the house will look when you are done. Then you can
estimate whether you will have increased the value enough to
justify the cost.
It often is in the small details that you'll get the best return
on investment, so look at these first. A new mailbox, flowers on
the porch, a raked yard and trimmed trees - $30 total if you do
the work yourself - can make a big difference in the first
impression potential buyers have. First impressions are
important.
Other small investments that pay big include shiny new switch
covers (less than $1 each), shelves, a birdhouse, new doorknobs,
new light fixtures, curtains, new rocks or wood chips on outdoor
paths, new faucets, new woodstain on decks, and general
cleaning. Stand in front of the house and imagine what it might
look like with various small improvements (flowers, wood-rail
fence, birdbath, etc.).
The Big Fixes
Obviously, there are things that just have to be repaired. The
basic systems must function. Improvements, though, should be
subject to the three-to-one rule. You may have to get creative
here. An investor friend of mine once had a wall put up, and for
less than $1000 created a new bedroom, probably raising the
value of the house by $8,000. Now that's a good return on
investment.
Bathrooms and kitchens are important. A $1000 updating of a
bathroom can add $4000 in value to a home. Spend $2000 wisely in
the kitchen (New fridge, re-finish the cupboards, add a garbage
disposal, etc.), and you can add $8000 to the sales price of the
house. Look for changes which are most universally valued (don't
paint the kitchen pink because YOU like that color), and be sure
you get a decent return on investment.
Depending on the fixer-upper, there are many potential
improvements that can be worth doing. These include adding a
carport, new doors, fences, gazebos, sheds, painting, carpet,
benches, a new closet, a new toilet, a new stove, a shower/tub
surround, and trees or bushes. The bottom line is the bottom
line: be sure anything you do returns more than you spend,
preferably three times as much.
About the author:
Steve Gillman has invested real estate for years. To learn more,
and to see a photo of a beautiful house he and his wife bought
for $17,500, visit http://www.HousesU
nderFiftyThousand.com
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