One of the best secrets kept by people who rehab and flip houses is that oftentimes buyers say they want value when what they are most attracted to (and most willing to pay for) is the visual appeal of the property. The goal of a real estate investor is to make only the investments with the quickest and highest returns, and success is largely predicated upon selecting the right improvements.
Major projects like house extensions, raising the roof to make higher ceilings, and additional bathrooms add value almost by definition. But in the fix and flip context, those are long-term, expensive, and complicated investments that don’t generally pay off on a scale that justifies the time and money that goes into them. Smaller replacement projects often have a far greater ROI, as their cost and complexity is much less, they look great, and they get buyers excited right out of the gate.
There are plenty of improvements to a property that add value and aren’t so difficult or expensive to make. They sit right on the line between luxury and necessity because they’re not strictly needed, but they do help to make the house a home. For example, a back patio may not seem essential, but it serves as a gathering place for BBQs and family dinners, thus making it an important part of the home. Highly functional and visible additions also bolster a home’s first impression and put potential buyers in a positive mood for the duration of the showing of the property.
The National Association of Realtors annually comes up with a list of home features that can generate the most income for fix-and-flippers. It can help guide you towards wiser home improvements for your property.
First Impressions: Replacement Projects that Increase Value
The Front Door
Perhaps the project with the highest ROI is replacing the front door. This project has close to a 100% long-term return on investment. It makes sense, too: we’re always told not to judge a book by its cover, but have you ever walked up to a creaky and chipped wooden door and not automatically made an assumption about the house? You don’t want buyers to see a flimsy door and make a decision before even crossing the threshold. A steel-frame door replacement project costs around $1200 and can increase not just the value of a home, but also its salability. A solid door connotes safety and security and increases the immediate curb appeal of a house.
The Garage Door
As long as we are on doors, take a look at your garage. I know when I was growing up, our garage door was full of dings and holes and smudges from basketballs, baseballs, and the occasional foot when my older brother reacted angrily to missing a shot. It was charming, but it wouldn’t hold any appeal for potential buyers.
Replacing your garage door – especially with one that matches your new front door – not only makes the house look nicer overall, it also makes potential buyers feel better about what’s on the other side. And the garage is indeed important. If the doors don’t work smoothly, buyers may not see it as a viable place for storage and will instead view it as just another chore. In fact, the NAR Home Features Survey found that buyers would pay more for additional, functional storage and it was even a deciding factor for the 78% of buyers that chose homes with a garage.
A mid-grade steel garage door will provide the best return across all markets, but upscale garage door replacements were also above 100% return in a number of California cities, including San Jose (161.1%), San Francisco (156.2%), and Los Angeles (103.1%).
Another thing to replace is the exterior siding. Siding is more than just an aesthetic choice. While older siding was hard to maintain and easily damaged (in addition to looking tacky), modern siding looks natural, is long-lasting, provides insulation, and is easy to maintain with simple upkeep. Home-buyers who once may have shunned siding now find it a valuable addition to any property. In terms of the return on your investment, three types of siding provide solid, long-term ROIs, which is great for you and your potential buyer:
- Fiber-cement siding: 83.9%
- Vinyl (mid-range): 81.5%
- Foam-backed Vinyl: 71.5
Wood Window Replacements
Window replacements serve a couple of functions for the fix-and-flipper. For one thing, they immediately make a house look far nicer. A tattered windowpane with the wind swirling through can make a homebuyer flee like it’s the Overlook Hotel. And while wood window replacements can be expensive, sometimes adding up to $12,000, they also boast a return on investment of up to 78%. Additionally, replacing your windows gives you the chance to make the home more energy-efficient and a far better buy. Any buyer is going to want to see that the house also gives them value for their buck, and energy-efficient windows allow you to demonstrate that.
And a Larger Project: A New Back Deck
This project is admittedly more than a replacement, but it has a great ROI at 101.2%. A new wood deck can cost anywhere between $3 and $35 a foot, but a good estimate is around $15 (of course, this is just for the wood, not labor or other materials). The urge to build decks slipped a little bit during the Recession, but now that urge is coming back. Wood prices are lower thanks to the diminished cost of shipping, which makes this an even more attractive addition.
The NAR’s Cost vs. Value Report accounted for 16’ x 20’ decks that included built-in planters, bench seating, a railing system, and three steps to grade. While there are other decking materials out there, such as vinyl and composite, wood still has the biggest return. For the best value and wow-factor, redwood decking is a great option that is also native to California.
And while a deck may seem cosmetic, it really isn’t. It’s a gathering place. It makes a backyard more welcoming. It’s a place for families to sit around the grill or friends to come over and have a cold one and a few laughs. It turns a house into a home and it turns a potential buyer into someone signing the dotted line.
Finance Your Improvements with a Hard Money Loan
As you can see from these examples, you don’t need to add on a hugely-expensive addition or make dramatic changes in order to increase the value of your house. Understanding the replacement projects that lead to a great ROI is the best way to increase your real estate equity without over-spending to get there.
If you’re renovating a real estate investment, consider a hard money loan to finance your improvement projects. Here at Socotra Capital, we can provide up to 75% of your costs, including the home purchase and rehab. With a hard money loan, nothing can stop you from putting together the perfect home for your potential buyers.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.