Does New Appliances/Cosmetics add resale value? If so, How Much?

Question

Need some advice BP!!

Working on submitting a counter-offer on a potential short term Buy/Hold, which i expect to Flip within 2yrs.

The property is offered at $105K, down $10K under market price. I believe a $10K-$15K remodel investment can reap $135K-$160K resale/refinance value.

I have several ideas to make the property more appealing and update some needed repairs, but unsure how  these things will impact my resale value. The property is a duplex, which from my estimate; only needs new appliances (washer, dryer, stove, refrig), restoration of front exterior wooden steps, and a new fence around the property for more curb appeal.

Looking for thoughts/facts on how to increase value? Example, does a new stove worth $1500K increase my property value by $1500K? $1800K? $2000K? $1000K? etc

Thanks

Ibn Abney · Answer

@Ben McMahon Great advice. Thanks a Ton! I guess i was focused more on the resell portion as a one and done remodeling wise. Waiting until i'm ready to sell is an option I never considered. My initial assumption was a fully rented property, with new features would sell for higher than a vacant property (assuming i would need to get tenants out but the remodel).

Thomas S. definitely not a home run, but i think could work. Deals are tough in my market without major work required. my current offer is $94K including closing cost, the seller's counter offer is $105K without closing costs. This is where we are hung up now.

I think with $10K-$20K remodel/restoration the AVR should be $135K-$160K. My final number is $97K. At this price and current rent the cap rate is 11.80%. My remodel number is very conservative as well. All cosmetic and non structure. With used appliances the cost drop by more than half. Thoughts?

How much margin should an investor seek without doing rehab work (flips i understand 50%-70% and we all what as much as possible)?

Thomas S. · Answer

The profit margin on this deal is extremely thin and could easily lose money if you do not know what you are doing. To make money you need to pay less to buy it.

Ben McMahon · Answer

I didnt realize you were going to rent first.  Don't buy new appliances.  I agree with @Natalie Vane You can get used ones at a fraction of the cost, and work just fine.  You can pretty much guarantee that after the tenants leave you will have to do another round of rehabbing before you sell.  I also get a package deal for about 2k on stainless steel appliances for the kitchen when selling.  Brand new.  You will probably even be able to resale the other appliances again.

If you are going to rent it for two years, only add as much value as you will recover from the raised rent.  So 200 a month on the top end more a month?  over 24 months, thats 4800.  If the unit rents out at 650 now, why spend more than what you plan to recover in raised rents?  Use that towards something that won't wear out in two years.  Used appliances are still used, new appliances become used.  A new toilet and vanity however, should still look pretty new.

In that price range the tenants aren't going to be too picky about things, as long as they work.  At least thats the way it is here.  I just wouldn't spend much money on the tenants unless they have already been in your place for a year or two.

That being said, obviously you want to look for any preventive maintenance.  Thats just going to save you money in the long term whether you sell or not.  Its all a balancing act

Ibn Abney · Answer

@James Skelton The main idea is to: buy, value-add/remodel, and then rent.

As is condition, I can easily get $625-$650 per month per unit ($1250 - $1300). With a basic remodel I can easily get $750/unit.

So that is the plan. Due to the rapid appreciation in the area, as one exit strategy, I would be open to selling in 2-3 yrs.

The question is how much of the remodel investment will I get upon resell or refinance? just because i invest $20K in a property, does that mean i should expect at least $20K return in resell/refiance value? or does $20K translates to $30K or $15K resell value?

James Skelton · Answer

Hey, Ibn, You want to make money on this deal, right? I know you do, look at the house as it sits, ask yourself, how much will it cost me to do what I think it needs to appeal to most people in this area? Then go to Zillow and put the address in and see what house's like that are selling for, in that area. They will give you a high and a low range. The low range should be somewhere around what the asking price is now, depending on how much work needs to be done. The high range is where you hope to be selling at. Get some estimates on what you want to get done, labor and material. Take the number from the high end asking price, how does that compare to the asking price? Are you going to make 20 k net on this deal, after everything is said and done? Settlement cost, on the purchase and a real estate commission on the sale? You're putting a lot on the line, you should get a good return if your not. Then run, don't walk from the deal. You need to be sure your gonna make money on the front of the deal. When you are going in. That's the way you live happily ever after. No guess work.  Buy and hold means just that. If you put renters in there for a year or 2 you will be working on the house again before you sell. Is it a flip or a buy and hold?

Ibn Abney · Answer

No, definitely wouldn't pay $1500k for a stove.

The question is how to increase the property value via remodeling/value add? What is the purchase value return when adding new appliances, new kitchen, bathroom, etc?

Does $10k Rehab (new appliances, restoration of exterior, new bathroom fixtures, etc) mean $10k higher resell price? $15k, $20k, $5k, etc.)

Thanks

Matt Gragg · Answer

If you are paying $1,000-1,500 for a stove, that is too much..... We get our appliance packages at the big box stores. For a fridge, micro-hood combo, dishwasher and range we pay less than $2,000 for all delivered. And this is all stainless steel appliances.

I would look around the area for what is offered as far as comparable to what you have. Extra bedrooms don't sell houses or even rent them.... Kitchens and baths rent and sell houses....

I would not waste the money to expand the existing bedrooms.

Do you have any pictures? Hard to give you advice without seeing anything.

Ibn Abney · Answer

@Natalie Vane@Ben McMahon Thanks alot for the input. I dont think i can any additional rooms/baths. I can possibly expand the bedrooms 2-3 ft, but that's about it. property size is 1800 sq ft.

Any idea on value adds to the exterior? any idea of ROI $.60 for every $1?