What Improvements Increase The Value Of A Home
Kris Krohn here with Limitless TV. What is actually going to increase the value of your home? What changes can you make to it? what alterations? how’d you get the biggest bang for your buck? stay tuned. In understanding what improvements actually increase the value of the home, you need to first start by understanding, what is a home really going to be defined by anyway in it’s worth? I mean people take a look at a house and then they assign a value to it. They don’t assign a value to the toilet, unless it’s gold. They don’t assign a value to the kitchen, they don’t assign a value to anything, they just give it a number. And that is a great question. What can I do to the home that will actually bump up its value? You know, there’s a lot of people that think that, how you increase the value is by upgrading the fixtures and by upgrading the cosmetics. Meaning, oh if I change the color the paint and I have some crown molding and if I change out the carpet and I put granite in there, I’ll get my money’s worth out of the home. And the truth is, maybe. But there’s a really good chance you actually won’t. Why? Well, the value of a home is only worth what someone is willing to pay for it. And that means that, you need other homes like yours or like the one you’re looking at to have sold recently in the area. You can watch one of my other videos where I talk about how to arrive at the value of a home. And we’re going to talk about a CMA. A, basically a market analysis and so if I have six homes in the area that are just like it that all sold for $200,000, then guess what this home is going to be worth if they were all the same? $200,000. I don’t care if you goldleaf the toilet. I don’t care if you put down 9-inch marble slab granite concrete pouring, feng-shui, cool whatever include throwing the furniture, because there’s no way that house is going to be worth anything other than $200,000. So if you want to go dump 50 grand into that house to bring up its value, the reality is that most of that money, not all. Most of it will be wasted. All you can do is increase the perceived value and shrink the time to get the home to sell faster. In other words, if I have a home with dated carpet and versus a home with new carpet, and they were virtually the same, they will both sell. But one will sell faster. And maybe there’s a little bit of a difference in the price. That’s what I want to hold on here in a moment, is I want to talk about, “alright, so are there things that I even can do then Kris to increase the value of the home?” and the question is yes. But there’s also going to need to be an analysis that we do to get there. First of all, let me just share a couple of things that you can do. When you perform one of these market analysis, most MLS’s, the systems that do these across the you know countries and counties statewide all across America, they’re going to assign a value to things in the house. One of the things that’s kind of funny is they’ll assign a thousand dollars to a bedroom. What that means is that, if you’re going to go from a six bedroom home to a seven-bedroom home, there were just the overall price by one thousand dollars. Now this seems kind of crazy only a thousand dollars for a home. Well, the reality is you don’t get a massive price jump in the value of your home until you go from a two to a three bedroom or even less but still some at a three to a four. Going from a four to five a five to six doesn’t matter. Going from a 1 to a 2 is massive. Going from a 2 to a 3 is really big. Going from a 3 to a 4 is meaningful. Those things can have a twenty or thirty thousand dollar price jump even without changing the square footage. Just by cutting up the interior. So adding a bedroom when you have one two or three bedrooms is definitely a way that you can increase value. And then the second thing is just understanding any cosmetic upgrades that you put in, all it’s going to do is increase the perception and help you fetch closer to a top dollar. And then that brings into mind this crazy component. It’s this idea of, wait a second. If I put in ten thousand dollars of upgrades, will I get all ten thousand dollars back out? That’s where we’re headed next. To bring this all together you need to understand ARV. Everyone say it, ARV. After Repair Value. Ok. This is what it looks like. The question is, what upgrade should I do? it’s going to depend on your house, the market, but I’ll show you how to do a very simple analysis and how to hire a person to put it all together. First of all, after repair value, that’s what really depends on this. So let’s say that I have a house. And this house has a value of $200,000 if it’s in good condition. But right now, the house is in bad condition. And then bad condition, we are in a seller’s market so ironically, it’ll actually sell for $195,000. And you think, well that’s amazing Chris why would it do that? Because when there’s very little inventory on the market like in many places around the country right now which means they’re doing a lot of building, people are, it raises prices and people are willing to pay to do their own upgrades. If we compare that however to a scenario where that same house is worth two hundred thousand dollars and we are going to invest twenty thousand dollars into the cosmetics. Then what will happen is, this house is worth two hundred thousand dollars no matter what. If I put $20,000 in, I can get it at its value maybe a few thousand dollars over, but we’ll say at its value. And the house in bad condition, I don’t do anything to the house and I get 195. Let’s look at the net difference. Here, I am going to lose, $5,000 from what I could, because I’m not willing to put in twenty thousand. On this example, if I put in twenty thousand dollars, I will get five thousand dollars more. What’s the greater loss? would you rather lose five thousand? or fifteen thousand dollars? Well ultimately, In this specific situation, it doesn’t make sense to invest in the house. In a seller’s market, that means that all of the advantages are to the one selling. Okay in a buyers market, it’s the flip flop the other way around. That means, there’s a lot of sellers with a lot of inventory that want to be selling and moving real estate and they need their homes to be in top-notch condition for them to get this price. And so, how do you really do this math? Here’s the shortcut, find a good realtor that understands investment real estate and then have them produce a comparable market analysis to determine what they think the value is based on what’s sold in the area, and have them produce two. One, if the house remains in its current condition and another or the house is in its prime condition, then the second thing is, how much would I need to invest in order to get the prime condition? And it’ll ultimately look like this. if I were to give you an example. And I by the way I do this on every time I ever disposition and sell a property. so in this scenario, if I have a house that is worth $200,000 and the idea is, If I invest $10,000 how much more will I get out of the house by putting in the repairs? And if I don’t, what do I sell it for? And so what those scenarios often look like is, “Kris, you owe 150,000 and if you invest ten thousand, you’ll get two hundred” in this situation I am going to net, 40 grand. Meaning, there’s a fifty thousand dollar difference but I got to pay ten grand to get all of it. Or, I might be in a situation where I owe 150 thousand dollars on the same house valued at two hundred thousand, but if I leave the condition and don’t do any of the upgrades, I’m only going to be able to sell it for a max of a hundred and eighty thousand. These are very real-world numbers that I see on a regular basis. In this situation, I’m netting forty thousand, in this situation I don’t invest the money in and I net thirty thousand dollars. So question, is it worth you coming up with an extra ten grand in 90 days to make an extra 10 grand? What kind of return would you call that? That is a 100 percent return. I put ten grand in and I got 10 more grand out. So in this scenario, would it make sense to put more money into the property? Yes. And it’s probably going to be cosmetic stuff. Maybe it’s that bath, that bedroom trick that I told you about, our bathroom similar trick like that. But this is, there are some houses that I put no money in and I liquidate because by writing a check and fixing it up, I won’t get more out of the property. Right now, we’re in a seller’s market in the area where I own a lot of my real estate so guess what? nine out of ten times, putting a little bit in will give me a, I put a buck in and I get two bucks out. I’ve also been in the other side of the market where you put in a buck and you’re lucky if you get a buck out. So it depends. Get a realtor, run the numbers and make a choice and that’s how you do it. You should have a better idea now of what will actually create and increase the value of your home. So, I invite you to go put it into practice. Kris Krohn here with limitless TV, and look forward to sharing new videos with you just make sure you subscribe.