Adding Value To Your Home: How to Determine What To Update

The following is an excerpt from our book Shut Up And Flip A House Already: A Guide to Help You Shit Or Get Off The Pot. It is geared toward house flippers, however the logic applies for homeowners taking on any renovation. 

To the beginner house flipper or homeowner doing a renovation, it may seem like an arduous task to determine what to update in their home. It is not. Knowing what to update is as easy as knowing what similar houses in the neighborhood look like and what features are expected by buyers. Simply look at your comps, the homes with which buyers and their agents will compare your finished home, and determine from there what your home needs. 

If the higher priced comps have beautifully remodeled kitchens, and you’re looking to sell for top dollar, then yours should have a beautiful kitchen. These comparable homes show exactly what sells in this neighborhood. Don’t try to get by with something cheap to save money thinking you know better than the comps. You won’t fool anyone.

For instance, you may look at some cabinets and think, “Maybe I could get away with painting these cabinets instead of replacing them.” Maybe you could. If you are in a neighborhood where that is acceptable and homes with painted cabinets sell, then go for it. If homes in the target price would never have painted cabinets, then you know your answer. Don’t do it.

This is how you know what to update.

  1. Look at your home in a side-by-side comparison to homes you want to emulate.

  2. Determine what they have that yours does not.

  3. Price that out.

  4. Determine if these updates fit into a budget that will allow you enough in profit.

Kitchens may be easy. The HVAC system and roof may be another story. Or is it? Let’s walk through some scenarios to show you how we think these things through.

Q: Should I replace old wood windows?

Look at the comps. Drive up and down the street. Even better, if there’s a home for sale in that neighborhood (especially if there’s an Open House!) - go check it out for yourself, all up-close-and-personal-like. Do most homes have replacement windows? Do buyers in this neighborhood expect replacement windows or do they love the charm of the older wood windows? Agents who do a lot of sales in the neighborhood would be a great resource to answer some of these questions as well.

Q: Should I replace a gas furnace that is 12 years old and working?

Unfortunately, sometimes you just have to take an educated guess. For instance, according to Google, gas furnaces have a lifespan of up to 20 years. Your furnace is older, but working. Your comps make no mention of newer furnaces. Your agent says that in their experience, the buyers they’ve worked with in that neighborhood haven’t bought a home solely because of an updated HVAC system. It’s nice, but not necessary.

A: Don’t replace it. Have a qualified professional come out and inspect it, clean it and do any necessary maintenance. Offer or buy a home warranty. Done. Unless….

A2: If someone comes out to do some maintenance that is going to cost $400 but a new furnace will cost $800….well now. Things are looking interesting. Adding a new furnace will only be an added cost of $400 above maintaining the old one. If you add one, you can then boast “New furnace” on your marketing material. You have room in your budget for this (or you’ll make room). You go for it. Tear it out.

Q: Should I replace a roof if I don’t know how old it is and it has two layers of shingles?

This is tricky. Sometimes you have no idea how old something is and if it is functioning properly. You see some water spots in the house from what is likely a leaky roof, but are they old spots that just weren’t painted over? Were the spots from before the second layer of shingles was added? Your inspector or contractor can’t tell either but they might be able to guess. The only way to know is to see it when it rains. It’s not raining and you have to put in an offer to buy today.

A: In this case, assume it will have to be replaced. Many times you don’t have the luxury of waiting to find out the answer you need. You’ll have to make due with your observations and err on the safe side. If you don’t need a new roof then good for you! Money saved.

Clear as mud? Let’s make this even more confusing.

Adding Value

This is where it gets trickier. As a flipper your brain starts to think, “How can I make even more money on this house? I know, I’ll add a deck. Everyone likes decks.” Come on now. Simply adding things does not automatically add value. There is no hard and fast rule that if you add X feature, you will get Y return on your money. We know they show you this on TV.

It is a lie.

Wendy asked one of her Realtors, “Do you think a deck could boost a home’s value?” their response was, “In general, yes. Or so we are taught. A wood deck, when done correctly, usually has a higher ROI (return on investment) than other improvements.”

Aaron Binik-Thomas is a go-get-em, super Realtor with Keller Williams in Cincinnati. He’ll try just about anything to market a home, within reason of course. No shady business! Prior to becoming an agent, Aaron was a sales person for a local wholesaler. His previous experience selling fixer-uppers has helped him to be familiar with many neighborhoods, allowed him to evaluate many crappy houses and taught him to know what features are good to add to homes to increase value and saleability. Aaron knows that not all houses and neighborhoods are created equal, though. In general, yes, a deck will bring a higher return. Is that always the case? No. Had we taken this information out of context, we might believe that this seasoned pro is telling us that all decks are a good idea for a house and one should always add a deck. Be careful what information you digest from the TV. Entertaining programming does not always equal the whole truth.

Value is in the eye of the buyer.

The buyer is going to rely on comps. Any additions you bring to the home will bring you one of these three things: added value, saleability or a loss. Let’s break this down.

Actual Added Value

Only some updates will bring value above and beyond the current possible sale price to your home. You can’t add just anything and expect it to boost your sale price. The only things that add value to a home are square footage, increased number of rooms and bonus spaces.

Increased square footage could mean adding an addition to your home, of course. Another way to add square footage would be to finish the basement in a home. An unfinished basement is not counted as square footage since it is not a livable area of the home. So, finishing it off could significantly add to your square footage without changing the existing footprint of your property.

You could increase the number of rooms in your property without changing the square footage. Below are some examples.

  • Turning a pantry into a half bath.

  • Taking one large bathroom and breaking it up into two bathrooms, thus increasing the number of full baths in the home.

  • Taking over a dining room to create a third bathroom.

The door in this foyer goes to a new powder room, once the pantry in the kitchen.

Clearly some of these may be detrimental, such as in the dining room example. If dining rooms are important to buyers in this area, then this is not a feasible option. If you were able to relocate or add a dining area in another part of the home, then win-win. If your home is in an area where the buyer couldn’t care less about a dining room, then you’re good to go.

Finally, you can add value by adding bonus spaces. This might be in the form of a garage or deck. They won’t add to your square footage or room count, but the increased functionality and desire for the home is at work here. If in your neighborhood, some of the houses have garages, but yours does not, then your house would only compare with the houses without garages. Adding a garage to yours will simply bring your home’s value up to the same level as the homes with garages.

Going back to the deck, let's look another scenario. Let's say that the homes on one side of a street have a beautiful view and the homes on the other side do not have a view at all. Add a rooftop deck however and now a home without a view suddenly has this desirable feature. This home is now more comparable with the homes on the view side and thus will align more so price wise with those homes. There are other variables to consider, of course, but you can now see that the new rooftop deck home's value will inch up closer to the higher price point.

Saleability

Some upgrades will never add value no matter what you think. Wendy was once asked by a family member, “How much did this water feature add to my home’s value?” She was sorry to report that the answer was ZERO. It didn’t increase the value of the home at all. What it might add is saleability, making the home more attractive to potential buyers. But, it did not add square footage or increase the number of rooms or bonus spaces.

Things that increase saleability are a bonus and not the norm for the neighborhood. Perhaps your home has a more beautifully manicured lawn or a larger than average pantry. These things do not meet the value adding criteria, but certainly do add saleability. Buyers may swoon at these features, but they won’t pay more. They’ll just like your home more than some of the others. Sellability really helps with moving your house quickly with fewer days on the market.

Loss in Value

We’re sorry to tell you, it isn’t just as easy as adding stuff and counting your profit. If you take 3 bedrooms and create 4 smaller bedrooms, you may have just shot yourself in the foot. Conversely, taking 4 small bedrooms and converting them into 3 bedrooms, one being a master suite with a walk-in closet, may actually work in your favor. It all depends on what buyers in your neighborhood love or expect.

Some upgrades may not lessen your home’s actual value, but will affect the perceived value. For instance, in Ohio, pools can only be used a few months of the year. In many neighborhoods, pools are seen as a maintenance nightmare; thus making the home less attractive, not to mention they come with increased liabilities. Some lenders will even require a homeowner to purchase more insurance if the property has a pool. Here is a big bummer: you add a $30,000 pool and it actually makes your home less attractive. You’ve just spent a ton of money on something people don’t want. Loser.

Disclaimer: we’re not saying water features or pools are always a negative. It all depends on the neighborhood and comps! In some areas, like Phoenix, pools are an attractive feature. In others they are a hindrance. Know your customer, people.

Do Some Math

Now, take a common scenario and do the simple math...

Let’s say homes with a garage in your target neighborhood tend to sell for $10,000 more than similar homes without them, then that is how much value you will bring to your home by adding a garage. If adding a garage costs $5,000, then BOOYA. Build a freaking garage. That’s a 100% ROI on the garage.

There is no magic number. The next time you see someone spouting off that renovating your kitchen will add $15,000 in value to your home, call BS. Do not take this at face value. Now you know that determining value adds is a process of researching surrounding properties, not hard and fast rules.

Want to learn more about house flipping and smart renovating? Check out our ebook below!

27th Street: Value Add, Rocks Aren't Bad

So, I've been doing this house flipping thing for 10 years. But, your mind doesn't know that. Your mind just thinks, "Hey! I can't move away from Cincinnati. What about my business!? What about my people!?" But then one winter you are FED UP. You're moving to Phoenix. So we did.

I've already talked about that. But, let me tell you about the first house I tackled. It was the perfect house for my first desert flip. Not too big, not too small. It didn't need an addition like so many homes here "need". No pool. Not much in the way of desert landscape. The budget wouldn't allow for it. 

So, that leaves the fun stuff. Mid-century modern has a greater presence than where I'm from and I was excited to infuse some into this boring, drab ranch. Behold the exterior before:

A typical person might think, "Ew that's dirty." The investor thinks, "Value add!" Turn that carport into a garage! Boom. 

This is one of the easiest things to do to a home and gain lots of brownie points. The only problem was the two bedroom windows in the carport. The front bedroom was easy. Just take it out, there is another. This was actually better for that bedroom because now there was one wall without a door or window obstruction. Helpful when you want to have a bed somewhere! The back bedroom, however, had only one window and it was in the carport. Thanks to my contractor, Pace's quick thinking, we decided to make the new garage more shallow on the right side and move the window further down the wall. The new window is in the back of the house behind the garage now. A car still fits the shallower space, it's just not as deep as the other side of the garage. And, because of this jog in the wall, we were able to put a door to the back from the inside the garage which can be seen in the next photo.

In the back behind the garage where the new window now sits, there is still roof overhead. This gave us an opportunity to have a secluded covered patio. If you are looking in the before picture through the carport, the new patio sits where the old fence once lived. Check out the new space.

Also in the back was about a billion square feet of dirt. 

I would have loved to turn this into a desert oasis, but the monies said NO. So, we did what we could to make it a clean blank slate. I know, I know. It's a lot of rocks. "We" do that here. You get rocks or you get pretty interior. Take it or leave it.

Continuing on around the house to the back door, was a serious lack in entertainment area unless you consider the beat up grill and more dirt. So, some dollars went toward a simple patio with a simple pergola. Honestly, there were no funds for this. This was a "splurge" in the sense that it was not "necessary", but I knew it was important to have something break up all the rocks. The pergola was a modern take on the traditional sense of one. I borrowed this idea from a home I saw around town.

My original idea was to have fabric woven in between the slats of the pergola and big bulbed lights strung criss cross across the dealio. The truth is I ran out of time, money and energy. This isn't like your home where you can tinker around with a room for months before you get it just right. As soon as the paint dries and the cleaning crew is gone, it's a mad dash to move in half a house full of furniture and decor. I didn't even wait for them to be done cleaning really. I barged in and unloaded my things. Everything has to be ready with in a day or two in order to get the photographer their time. To source fabric, pay for it and then have to remember a staple gun AND STAPLES. Guh. NTY. So, new owners...do that to that pergola. It will be great.

Swinging back around to the front, I loved making this house bold, like nothing else on the street.

The colors were jarring to me at first with the dark walls and the bright trim, but once the grass had grown in and the front door was painted, all was well. A lesson in patience. Big picture, people.

There you have it. A rundown ranch home transformed into a mid-century-ish sparkly new ranch home. I hope this post helps to understand the thought process behind how a house gets flipped and the many decisions that are made behind the scenes! It's not easy to make some judgement calls but we do our best to make a great new home for the new homeowner.

Details:

  • Exterior wall colorSW Urbane Bronze
  • Front door color: Dunn Edwards Skipping Stones
  • Trim color: Behr Ultra White
  • Door Hardware: Kwikset Milan in Black 
  • Potted Container and cactus: Home Depot terracotta painted gray
  • House numbers: Home Depot
  • Pendant Light: Wayfair discontinued

 

 

Note To Self: 10 Steps To Handle The Haters

I hear that once you have haters, you're doing something right. I've been getting a taste of that lately, so I'm 100% positive I'm becoming sort of a big deal. Mahogany and leather bound books, y'all (please tell me you can feel the sarcasm oozing). I've seen comments stating that my designs are carbon copy HGTV. (Is that a compliment?) I've also seen "no personality....dull and lifeless" as a description of the kitchen above at one of my recent renovations. Whether the negative feedback is accurate or not, is not really the point. It's what do I do with this information? WELL, I'll tell you. Below are step by step instructions for myself on how to think my way through the hater-ade. Tweak as you feel necessary for your own haters.

1. Decide if this person's opinion is constructive criticism or just bullying. This is sometimes difficult to judge but my rule of thumb is if they are being blunt and rude, then their comments are automatically null and void. If they seem to be making an effort to be kind, yet state where improvements can be made, then perhaps they are on to something. 

2. Pay attention to where the haters are coming from. If they are commenting on my page or social media accounts, then it's likely they are or have been a fan of my work sometime in the past. They found me somehow. They must have liked something. I'll take note of their comment and move on. If it is a photo of mine that someone else has shared or that I promoted/advertised on social media, I give bad feedback or bullying very little merit. I'm now once removed. They don't know me. Maybe the commenter is not even a fan of modern design. Maybe they don't understand that certain houses require certain design details. That's ok. I can't help them understand.

3. Remember that design is subjective. Not everyone will like what I like. That's fine. If someone showed me a huge traditional kitchen, I probably wouldn't like it and would say so if asked. That doesn't mean it wasn't done well. Just not my cup of tea. There's no way of knowing a person's tastes unless they come right out and tell you.

4. Repeat my mission. Push the envelope, try new things and set myself apart from the "others". This is very important. If I'm going to be different, I'm going to get different responses. Maybe even....GOD FORBID....negative responses. Some may not understand why I don't like to put upper cabinets in many of my homes (am I the only one that gets a dented skull from open cabinet doors?) or why I won't design a typical "yuppy farmhouse" style Arcadia home. It's been done. My mission is to create new designs, not carbon copies. Not even of HGTV. Truth be told....I don't even have cable and only recently borrowed a TV so we could watch Olympic gymnastics.

5. Remember that armchair bulliers are regular people. They're sitting at home or bored in their office throwing out thoughtless comments to faceless accounts. They aren't thinking or caring about the person behind the Dwelling Studio brand. In fact, they probably don't know it's just little ole me!

6. Know that I can, do and will make mistakes. My designs might miss the mark in places sometimes. That's ok. Every house is a new blank canvas. I learn from each house and apply those lessons to future homes.

7. Tell myself, "At least I'm out there trying." Most people aren't brave enough to flip houses. If I had a dollar for every person who told me they wanted to flip houses but never did, I'd have all the monies in the world to flip EVEN MORE HOUSES and make even MORE BOLD CHOICES and DESIGN MAGIC (or mistakes). I'm out there plugging away making design decisions. Countless design decisions. My brain hurts sometimes. 

8. Remember that I'm a house flipper and stager, not an interior designer. There's a huge difference. I'm designing for an imaginary person, not a known client. I straddle the line between pushing the envelope and pleasing a small portion of the public shopping in that neighborhood, on that date, with X amount of dollars. Shoot that just scared me and I've been doing this for a while. 

9. Remind myself of the tight budget and timeline. While some might drop $60,000 on their kitchen, I'm spending that on an ENTIRE house. When I stage my homes, I buy everything myself. I like to do it and I think it makes the house look more custom. I don't always have time or money to go get another bed (plus bedding, pillows, mattress) and I almost never have the patience and money for curtains. I work with what I've got. People see one of my rooms, they say, "Hmm, curtains would've been better." Well, no shit. Please buy them and install them. Thank you.

10. Move on from the haters. They aren't worth my time.

I've spent a lot of time thinking about this over the years. Too much time. I've let the fear of what others might think or say about my work (aka me) creep into my head and slow me down. I can't say it won't slow me down again in the future, I'm human. But it won't stop me.

No one can. 

NO ONE. 

Wah ah ah ah ah! :)

How To Start Over From Scratch: Moving To Arizona

For years I've wanted to move from Cincinnati to anywhere warm. Cincinnati is an AWESOME city. The changes it has gone through in the past 5-10 years are gigantic. It's actually cool. I'm serious. But, the winters I just can't handle. So for years and years I tried to move but "couldn't".

SPOILER: One of my last renovations in Cincinnati

I was scared.

How could I start all over again?

I'd have no business connections. I'd have to know a new city and it's neighborhoods. I'd have to know what buyers were looking for in that part of the country, how much that would cost to do and how much a buyer would pay?

How long would it take to gather all of that information

How would I be able to replace all of "my people"?

Would I be successful?

Even though I had lived in Phoenix before, it was more than a decade ago as a college student at ASU. Aside from remembering the name of some streets and parts of town, I knew nothing of the real estate market. I got my Crossfit Level 1 Certification just in case. Maybe I could coach while I figured things out.

Turns out.... I was an idiot for doubting myself.

My first house in Phoenix.

Six months ago I landed in Phoenix and hit the ground running as if I'd been here all along. Last month marked my 10th year in business and I forgot about it because I was...

TOO BUSY WORKING.

Some of it seemed like luck. I met my contractor, Pace Morby, through Instagram. He is about to begin my third renovation here. But was it really luck? I had been chatting with him occasionally on Instagram posts for about a year. Networking from afar if you will. One of my agents, Michelle Houze was referred to me by a Cincinnati friend. Her and then another agent I met, Rachel Hugenschmidt, showed me the neighborhoods and what people were looking for in a home. Another contact I found at an AZREIA meeting I attended a couple winter's ago while vacationing here (nerd alert---> me, who does that on vacation?). He went to the University of Cincinnati back in the day. He'll be checking on one of my remaining Ohio homes when he attends a football game there soon. One of my favorite furniture dealers was found on Craigslist. Some people have reached out to me, while others I have hunted down. Things are weird, adventurous and random.

I love it.

My second renovation in Scottsdale.

There was no reason to be scared. The skills I learned over the past 10 years transferred. If you know how to learn, you can relearn. I didn't know anything about desert landscape, but I knew how to figure it out. I dove in. Head first. I went to nurseries. I learned names of cacti, how much palm trees cost and what an irrigation system costs. I asked my contractor 1.2 million questions, pinned ideas and studied comparable homes. I'm still asking a billion questions and learning on my own home.

Dragged some great staging stuff with me from Cincinnati like that vintage kimono. :)

The secret to starting over or learning new things is this....

Just do it.

Start.

GO.

If you're thinking about changing careers or locations, do it. If you want to flip houses, do it. Just learn. Learn more. And then learn even more.

Learn EVERYTHING.

A Real House Flip: Week 2 of Renovation

Moving right along to week 2 of renovation! This video is when it gets real. Real issues, real solutions. Sorry folks, I left out the dramatic music that makes burst water pipes seem like the end of the world. This shit happens. Then you fix it. THE END.

See all of the videos for this house here.