Best upgrades for refinancing?

Question

My wife and I bought a home for $315,000 and it appraised for $365,000. We want to remodel, knock down two walls, get rid of the 80’s carpet, popcorn ceiling, new trim.

How big of a difference would doing a kitchen remodel do? Original from the 70’s, we would update, open kitchen concept.

The goal is to get rid of MI, and cash out refi to purchase another investment property. Thanks for your help!

Melissa Hartvigsen · Answer

Hi @Bradley BohnstedtRemodeling rarely gets you more money than what you invested into the project. Here in the Pacific NW, one of the biggest value adds is replacing carpet with actual hardwood floors (not laminate or engineered wood). A $25,000 cost for a kitchen remodel here might increase your property value by $18,000 to $20,000. Remodel.com puts out an annual report of what you can expect from your remodel, I pulled this image from their site to help you with your decision:

Brian Valdivia · Answer

When I renovate for appraisals i target items that i think will cause the appraiser to grade the property higher on a quality scale.Here's a few of the things I do:1. Use tile finishes in kitchen backsplashes and bathrooms2. Use vinyl flooring on the main floor of my properties3. Add those puck recess lights to the main living room (gives it a 2023 feel as soon as you walk in)4. Stone countertop (granite or quartz) over linoleum 5. If replacing kitchen cabinets isn't in the budget, that I would paint them white and replace hardware.

Brad S. · Answer

Best way to find out is to find comps with upgraded kitchens and other upgrades/updates similar to how you plan on doing your upgrades/updates and see how much they are selling for as compared to properties not upgraded/updated. Since you are an agent, I assume you can look up the data, and/or you can "walk" the current listings and take notes as to what upgrades are generally done.That is one benefit I have as an appraiser, when I am doing an appraisal of a pending sale. Especially if the house is a newly rehabbed or built house, I can see what upgrades/features, etc, the sellers think the buyers are looking for and the what the buyers seem to want. The number of offers, days on market, and contract price vs list price, and specific contract terms, all give me a good sense of how that house performed in the market. Sometimes, I also ask the agent/s about the buyer's reaction to certain characteristics of the house, etc.In some markets, upgraded/updated quality and condition make a big difference and others, not so much. You really can't use general research to determine that for your specific market.

Anthony Rega · Answer

IMO Adding square footage is the best way to add equity. The upgrades will increase value, but maybe not enough to get rid of MI and take cash out. You can refinance to 80% to get rid of MI and then get a HELOC to 95%CLTV for cash out. Let me know if I can help.

Devin Peterson · Answer

You should look into utilizing a bridge Reno loan or a DSCR cash out. With MI associated with this loan it sounds like you went conventional or fha. MI doesn’t exist in the creative lending space that is non-qm. I would definitely recommend one of these two options. Less paperwork, quicker close, more fun!

Kerry Baird · Answer

I do what @Brian Valdivia suggested, and look at the appraiser's quality and condition report. I choose things that don't cost too much that I can add to the property, which will boost the house into the next higher tier.

Zach Edelman · Answer

You could always get an appraisal just to see where you're at.

Dave Skow · Answer

@Bradley Bohnstedt- thanks ...you might renlist a real estate agent that is familiar with the area to provide some assistance with this question ....are you funding kitchen out of pocket or are you wanting to use the refinance cash out for the remodeling ..is this your primary residence ? fyi - most loan programs have a max loan to value of 75% for a cash out refinance

Zach Wain · Answer

I think you have 2 opposing goals - spending money to remodel your home and also increase the value so much that you can get cash out. It is unlikely that you will increase the value of your home dollar for dollar compared to the remodel. Adding sq ft is the best way as someone else mentioned. But doing a kitchen remodel, carpets, ceiling, etc will not get you a dollar for dollar value increase.Its worth it to make your home more enjoyable, but it will not make you money