Rehabing: Where to Spend Your Budget

Rehabbing property is a great way to make money in Real Estate. Two essentials to making money are knowing where to budget money for the project (what will give the greatest return?), and how to analyze the home and market conditions. Refer to my article “Before you Buy Do This…” for information on property and market analysis. The topic that I want to briefly cover is where to spend money to get the best return on reading.

As most people know kitchens and baths offer the highest returns on remodeling projects. In most parts of the country these two home areas will have a 100% return on the cost of the project, and that is when you are paying a contractor to do the work. If you are doing some or all of the work the return will be even greater.

Why do these two areas have the greatest return on investment? A simple answer is that women make their home purchasing decision with a heavy bias on these two areas. Women are either the only purchaser or have more say in the purchase than men. Appealing to Women is essential!

The National Association of Realtors publishes an annual report on the average returns and cost of remodeling home additions across the U.S. One thing that I found interesting about the report was the varying returns on different additions and remodeling projects depending upon which region the home was in. For example an addition of a deck in the Midwest had over a 100% return on the price of the home. Whereas, the return was below 80% of the cost in other parts of the country. The report can be obtain from your local Realtor Association for a nominal charge.

I am still surprised when I go with a first-time home buyer to look at entry-level homes. They are often wooed by Stainless Steel appliances and other amenities that you would expect to find in higher-priced homes, and they seem to overlook more important areas of the home and neighborhood that will create issues for them after the purchase. I recommend spending money on these higher priced amenities to the people that I work with that do rehabing, and usually pays off with quicker home sales and higher offers. If you are going to skimp on any part of the home do not do it in the kitchen or bathroom(s).

Two other areas that I would pay special attention to would be the front of the home and the entryway that people will see first. Curb appeal is something that can make or break a rehab project. About 10-20% of the homes that I have scheduled for buyers to view never get past a drive-by. If there are overgrown bushes and chipped paint or broken windows they often tell me “keep driving”. I would say another 10-20% open the front door and get an initial impression and quickly do a 180 and head back out to the car. So up to 40% of the buyers are eliminated without even getting past the entry-way. Don’t let a few hundred dollars worth of bushes, paint and lighting kill the deal.

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