Two of the most important developments in real estate over the last generation have been the rise of ecologically-friendly and sustainable buildings and the re-imagination of multi-family dwelling units (MDUs). For a long time, MDUs were very utilitarian, in an attempt to cram as many renters into one building as possible. They were rarely great places to live, but over time, smart owners starting adding things like gyms, open rooftops, common areas, and other perks to make them seem more like welcoming homes. Over time, these MDUs started to morph into mixed-use buildings, particularly in dense urban areas.
Hard Money Loans
If you are the kind of person who wants to fix-and-flip a house, chances are that there are things you already know how to do. You don’t need to be told how to handle your tools. You can look at a house and understand what is wrong with it, and what needs to be fixed to make it more attractive to buyers. If the foundation needs shoring up, you’re the person to shore it up. Those things you know. What you may not be as familiar with is understanding the short-and-long term trends, both regional and national, that can impact your potential sale. Getting a hard-money loan to fix-and-flip a house means understanding how the market works and what you can do to get in- and out- at the right time.
Understanding the residential real estate market means figuring out which trends are going to be short-lived and which ones will impact you. To start with, we have to differentiate between a few factors.
When flying into sunny Southern California or Nevada on a sunny day you may be struck by the shimmering light of a thousand perfectly round little lakes as you descend over residential neighborhoods. As the ground clearly comes into focus, these shimmers reveal themselves to be swimming pools – found in nearly every suburban backyard. It’s pretty awe-inspiring, and as you step out of the airport into the heat you quickly understand why so many homes have them.
If you’re investing in real estate and are wondering how to get a great ROI on a fix-and-flip with your hard-money loan, you might be thinking that installing a pool is a great option. But before you do, you should know that there are both benefits and drawbacks in doing so. In fully understanding the market and the pros and cons, you can decide where to spend your money to get the best possible return on investment. The first thing that you need to understand is that not everyone wants a pool This is hard to grasp: everyone may want a friend with a pool – but not everyone wants to buy a house with a pool.
Pool Expenses: Now and For the Buyer
Pools are not cheap. Installing an in-ground pool can cost anywhere between $20,000 and $50,000. An above-ground pool can cost up to $10,000. The most popular kinds of these above-ground models are attached to a deck and serve much the same purpose as an in-ground pool. However, for many buyers these just don’t have the same caché.
So first there’s the money you are going to spend on installation. Next, you also have to take into account what the buyer may be willing to spend on added ownership costs. Pool owners can expect to spend $200-$400 a month on upkeep, and sometimes much more. A lot of this cost is in heating the water, which of course may be less necessary in warm areas of Southern California or Nevada. Regardless – this is an expense that a buyer is going to have to consider if they look at a home with a newly installed pool. This might make them leery, which leads us to our next point.
A Pool Isn’t Always For Everyone
In our last article, we talked about how certain more personal additions hurt the resale value of a home. That’s something you need to take into account when buying – but especially when trying to add value, you also have to understand to whom you are trying to sell. A swimming pool can cut down on the pool (pun intended) of potential buyers. There are many potential home buyers who may have small kids, who perhaps don’t like swimming, or who just don’t feel like they want the hassle of maintaining a pool.
Also – don’t forget that one of the ramifications of the current historic drought in California is that rising water prices make pools much more expensive to maintain and may also turn off people who may think that they are wasteful. We could be entering an era where pools aren’t seen as a fun and innocent luxury, but as something destructive and decadent. Indeed, many people today are looking for water-friendly renovations. Staying ahead of trends is a key part of the business.
Many Experts Think Pools Are Bad for ROI- But There’s a Catch
…And here is the big kicker. Many experts think that adding a pool provides some of the lowest home-equity ROI of any potential project. It is hugely expensive, and doesn’t add much in the way of value. This is a strong argument to consider. However, there are some mitigating factors. The low ROI numbers are nationwide, and they improve up to 11% in California or elsewhere in the Sunbelt (as well as the Deep South). Another economic factor to consider is that as the seller, you aren’t putting in the money to maintain the pool year after year, so aren’t putting quite as much money into it. That skews the statistics slightly in your favor.
Here are a few other factors you may want to consider.
- Does every other house have one? There is a psychological pressure to conform, and some buyers won’t want to be the only house on the block without a pool.
- Is the backyard big enough to have a pool and still have a yard? While huge pools were once in, people want gardens and room to play. If the entire yard is taken up and there is no green space or room for a patio, that might dissuade potential buyers, especially if they have kids.
- Does a pool fit the aesthetic of the house? A pool may be great, but if it looks architecturally jarring, it will turn off a lot of buyers. Don’t jam a pool into a house that is plenty elegant without it.
Overall, a pool may not be the best use of the loan you get from California’s hard-money lending leader. If you carefully study the neighborhood and the trends, you might feel it is the right move. As with everything else, do your homework, crunch the numbers, consult with local experts, and don’t rush into it. It’s fun to take a dip, but no one wants to take a bath.
America has always been built with the frontier in mind. From the first pioneers who slid through the Cumberland Gap, to those who braved the wilds of the Illinois Territory, and across the plains and mountains and deserts to that sparkling California coast, the whole ethos of the country has been one of expansion. That’s continued, albeit on a smaller scale, with the expansion of urban areas that reach farther and farther from a city center. What does it mean for real estate when the expansion reaches its end?
In real estate, things change all the time. One day your buyer wants a multi-head cascading rainforest shower and the next day they are all about low-flow and efficiency (or asking if they can have both). An attic that was going to be unfinished suddenly becomes a new room for the in-laws. You have to be fast, nimble, able to adapt, and ready to change your strategies when needed. Unfortunately, you are also usually tied to having the money to do so.
Any sports fan knows that, buried among the cavalcade of statistics, there is usually one number that is the best immediate insight into a player’s performance. On-base percentage. Yards per completion. Unblocked shots on goal. Service hold. These aren’t perfect, but if you had to pick one number to tell you something about a player, you’d probably focus in on these. Real estate investing has a similar number that lets you know both the short and long-term trends of investing. That number is the “price-to-income ratio.”