What rehab improvements will maximize resale?

Question

I'm buying a foreclosure for $84K, ARV should be $125-$130K based on comps, maybe a little higher based on quality and condition. 3/2.5/2 1720 Sq Ft, 1988 construction.

The loan package consists of a 6 month IO construction/rehab loan where they will loan me 75% of estimated ARV now, then refi into a 30 yr fixed when work is complete.

The ARV is determined by the appraiser based on comps and based on a list of improvements that I intend to make. My lender told me to just create a room by room list of specific improvements that I will make. Once I provide that list, I must improve to that level or BETTER.

So my question is, what exactly should I improve and to what extent and what should I leave as-is? IOW, which items affect the appraisal the most? This is a very middle class neighborhood, some houses are well kept up and some haven't been remodeled since construction 20-25 years ago. I'd expect no one else to have granite countertops - so that would be an over-improvement, right?

My current improvement plan is:
new roof - its really old and several shigles are gone
new flooring throughout - currently concrete
new paint in and out - 50% brick/siding ext
repair siding on chimney - has rotted away due to water damage
new water heater
new AC/Furnace
repair sheetrock water damage from plumbing leak
replace kitchen appliances
landscaping
replace garage door - wood rot

optional items would include:
replacing various fixtures - which ones?
new kitchen countertops - currently formica - use newer formica? something else cheap?
replace 2nd bath tile (dirty) with bathtub insert
replace master shower (currently cultured marble?? - dated looking) with fiberglass insert
there is a jaccuzzi tub in master as well - not sure if it works - would it hurt value if I pulled it out and put in shelving?
pouring a 12x8 concrete patio in back - currently it is a wood deck raised 4 inches off the ground under a covered porch. Does not look new.

So basically, what improvements/materials give the most bang for the buck in this type of neighborhood? I can link to pictures if that helps.

The goal is to sell as a lease/purchase with a backup plan of keeping as a longer term rental. So I will have this for a couple years, maybe longer.

John Moore · Answer

I would suggest you speak directly to a local Appraiser and see what rocks their boat. In my area often times you can put in a high grade window and get no financial credit for it. Granite in this my area you just about recover the actual cost; Architectural Shingles you gain a little ground. If the jetted tub works I would leave it in place, why incur additional expense. Jetted tubs are a turn on even though they are not utilized as much as people imagine although they set the mood for some prospects. Attractive kitchen cabinets, lighting and stainless steel appliances seem to get more bang for the buck Garage door opener you will recover the cost and it will help you with potential prospects, improving the garage may get you some additional consideration from the appraiser and the prospect. Laundry facilities are important to most families, closet and storage space. My suggestion is to make the home as attractive as possible within the budget you allocated. Sorry I wasn't specific on what would give you the most bang for the buck you will find that the appraiser will use his experience in the neighborhood and bring your property in at a level reflected by the quality of improvement over similiar properties.

Bill Briscoe · Answer

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Bill Briscoe · Answer

Here is the jetted tub. It has that dated color and gold faucet, but I think it works. The water isn't on, but I turned on the switch and the pump came on.

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What do you think? I do plan to remove the wallpaper and paint!

Annette Hibbler · Answer

Generally, kitchens and baths sell a house. Therefore, keep the jacuzzi if you can get it working and clean it up well. Could be you only need to replace the filter. If you have an IKEA within driving distance, they make a really nice butcher block countertop that can easily be cut to size. Any marks on it can easily be sanded off and the coated again. So it's durable and easily repaired.

However, before you embark on your repairs, seek out the advice of a contractor who has lots of experience rehabbing homes. Tell them you'd like a quote and as they walk through with you, they can give you an idea of what is worth fixing, how to go about it and how much it will cost.

Bill Briscoe · Answer

"I would suggest you speak directly to a local Appraiser and see what rocks their boat"

Good idea - I'm trying to contact some appraisers now. Don't actually know any local ones however. Is there a local data book that appraisers go by to make adjustments for carpet vs tile vs hardwood vs laminate, or brick vs wood, architectual vs 3 tab, etc? How would I get my hands on such data?

Bill Briscoe · Answer

"Commission on resale = 7K New roof = 5-10K New Paint = 3-4 K New flooring = 3-5 K New Furnance = 3-5K New WH = 1K Garage Door = 1K New Kitchen aplliances = 2-3K Carying Cost = 6K "

Agreed the margins are thin. I make up for that by bargain shopping and not paying for a contractor's profit margin. My repair budget is around 24K plus 4K for contingencies. My exit strategy is either market as lease/purchase or hold as rental - avoiding the commissions.

Specifically, I have:
$7K for roof
<2K paint - I'll do interior myself. Exterior - I know a guy...
Flooring - agree with your estimate - but what are the pros/cons of various materials here? Comps are a mix of laminate/tile/carpet.

HVAC- agreed Garage door - priced at about $700 installed - might be able to buy cheaper and install myself WH - budget model for $350, install myself

Kitchen appliances - I'm thinking ReStore or like new from CL for say $250-300 a piece for black/stainless oven and DW. Fridge is usually considered personal property here.

Kitchen counters - I priced a pre-fab faux granite formica counter with end caps for under $150 at HD. Would need 2 pieces. Install is simple enough. With sink/facuet probably $500-600. From pics the comps look like updated formica or possibly Corian. What are the cheapest counter options that are an upgrade from formica?

Baths are the other question - what are pros/cons of various 3-piece Tub inserts vs cleaning existing tile, other options? Comps are a mix of vinyl inserts and tile. The Tub inserts start at $60 up to a few hundred.

Carrying cost - depends on rehab time - about $700/mo interest and OpEx.

Tom Goans · Answer

This question is best answered by studying the target market and demographics for the neighborhood. What works in Dallas, Texas does not necessarily apply in the your property's neighborhood. What is a must in the high-rent area does not apply to the medium-rent neighborhood. What is a must for the white-collar worker may not apply for the blue-collar worker.

Edward Burns · Answer

Sorry I forgot a few things. Seeing you are planning to replace the Hot Water and furnace check with your local utilities to see if any quasi-governmental rebates are available. In my area No Illinois, you can buy a 67% efficient gas HW heater for about the same as a normal one, yet the 67% efficient model the gas company will provide $100 rebate. Similiarly they will provide rebates on HE Heating systems (ie 95%+ effcent). Electric companies also have rebate programs. The high efficiency status might prove an advantage when selling at no cost to you.

In addition, some manufacturers have rebates on appliance packages (ie buying 2,3,or 4 made by the same manufacturer).

Jon Holdman · Answer

That's a long list of required repairs for such a slim margin. Given your numbers, I'd do the absolute least I could do to make it look pretty and new.

The best way to avoid over improving is to look at the comps. Get an agent and go walk through all the current listings in the area. Match whats in them.

What rehab improvements will maximize resale?

What rehab improvements will maximize resale?

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