Renovation values

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Renovation values

Postby consultantjournal » Thu Jul 19, 2007 8:42 pm

Do you ever watch these house flipping shows? They say stuff like, "New appliances: $3000. Added value: $5000." How do they know this? I mean, I guess professional flippers have some way of valuing upgrades, but how do you know what the value is.

For example, let's say you have a kitchen. You spend $4500 on new granite countertops, $4500 on new appliances and $1000 on new cabinet fronts. Is the kitchen now worth $10k more? These flipping shows seem to indicate that the upgrades should be worth more. But then you always hear that you only get 80-90% back on kitchen and bathroom renovations. Is that because the upgrades depreciate before most people sell?

I asked a real estate agent how they figure these things out and she said that most agents just go by what adjacent properties are worth, not by individual upgrades.

If you're planning to sell a house in a couple of years, it would be good to know what the upgrades might fetch. I mean, you might decide to do granite instead of laminate or whatever.

Any ideas?
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Postby JerichoHill » Thu Jul 19, 2007 9:07 pm

Most of those flipping shows are staged and fake, google sam leccima and see what flip this house is really about.

You can add value, but its something like, if you renovate youll get back 70 cents on the dollar, I think, for a renovation.

Additions add value.
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Postby tinyhands » Thu Jul 19, 2007 9:10 pm

The only 'upgrade' I've ever heard of actually adding value is a $15 can of paint.

But then again, you can say that new countertops add "value" all you want, but it still won't necessarily get you more money when you sell. It sounds like one of those tricky marketing terms, since value is relative and doesn't necessarily equal price. The real value might be that the buyer got $4500 worth of granite essentally for free.
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Postby consultantjournal » Thu Jul 19, 2007 9:58 pm

Mmmmm...in my neighbourhood, the homes with new paint, granite counters, higher end appliances and new cabinets seem to go for about $50k more than the ones that were left alone. This is more than the cost of those upgrades.

When we sold our old place, we had put about $12k into it, but we sold for at least $25k more than we would have, perhaps $30k.

Of course, the non-updated homes around here have filthy carpets, damaged counters, dirty windows, etc. So that must figure into it.

I just wondered how the valuation is determined. (I'm in Vancouver, which has been a crazy market for 6 years, so that may be part of it.)
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Postby sandycheeks » Fri Jul 20, 2007 6:53 am

re these shows:
1. the amount they say they spent on an upgrade seems very low. We are bargain shoppers/renovators and could never match the prices they quote. 2. the labor costs they quote are even lower. We speculate that they are using majority unskilled day pickup work, not the kind you get from a staffing agency. I don't take the prices they quote seriously.

I think the price you get for a house is based mostly on comps.

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Postby radioheadok311 » Fri Jul 20, 2007 10:43 am

Richard Davis from Trademark properties is the only one I would trust to be legit. It seems like he has made a ton of money and built a company around it. If he isn't legit, I would be very surprised. If you want to make your own decision watch his show "Real Estate Pros" etc... Or read some of this, or go to his website... http://www.trademark-properties.com/
http://www.flipthislawsuit.com/2006/07/ ... his-house/

Some of the other flippers on Flip that House seem legit (although the more I research each of them the more I am afraid none of them are real), however I would be curious as to how much they actually spend and what they actually get for the homes they renovate. Flipping was easy for a while but now it seems that the housing market has made it a VERY volatile profession.

I'm not endorsing flipping houses as a profession, however I don't think one can ignore the possibilities of profits in flipping. With any investment, it takes due diligence and calculated risks. Getting a good price on an investment is an art and science and not one to flippantly partake in. If I were to ever "flip a house" I would have as wide a margin of safety and money reserves as humanly possible.

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Postby nickel » Fri Jul 20, 2007 12:56 pm

Where we used to live, everything was bought and sold based price per sq ft (more or less). Different parts of town, of course, had different prices, but in a particular neighborhood, prices typically stayed within a fairly narrow band in terms of price per sq ft. In such a case, it's hard to imagine 'upgrades' doing much in the way of improving your property value. However, adding on space could be useful if you could get a decent addition for less than the going rate. Tthis is easier in better locations where properties cost more, as presumably the construction costs would be similar to having the same work done in a less expensive part of town, yet you'd get a better return. Of course, in a given neighborhood, larger houses were typically at the lower end of the price per sq ft range and smaller houses were at the upper range, so adding on wasn't a no-brainer. Moreover, you could easily price yourself out of a neighborhood/target audience if you did too much.

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Postby consultantjournal » Fri Jul 20, 2007 2:26 pm

THanks. It's not so much that we're trying to be house flippers. But we bought a place that needed a lot of cosmetic work and we're just trying to figure out where to put our money. We're only going to be here 2-5 years. We bought it below market and the savings alone from that make up for the cost of selling and probably our reno budget, too. We're not flipping it, per se. I'm not worried about getting stuck holding the bag, as we had equity from our previous home and the market has come up even more since we bought this place. Even if the market drops, we'll be okay. I'm just trying to figure out how professional renovators and flippers figure out what upgrades to do. I mean, when we were looking at places to buy, they were looking at the same properties. Then they come along, put in various upgrades, and sell the place for more. So how do they know what to do?
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Postby sandycheeks » Fri Jul 20, 2007 2:40 pm

consultantjournal wrote:I mean, when we were looking at places to buy, they were looking at the same properties. Then they come along, put in various upgrades, and sell the place for more. So how do they know what to do?


From what I've seen of the shows they focus on kitchens and bathrooms, hardwood floors, paint and curb appeal.

They have contacts in the business and use stuff from demo's, discounted landscaping from leftovers of commercial projects (the landscapers are getting a double dip). Not always, but a lot of time they use what they can get cheap.

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Postby consultantjournal » Fri Jul 20, 2007 9:35 pm

Yeah, kitchens and bathrooms sell places. But what would you do in this situation? New places going up around here are putting in quartz countertops and premium everything. We're redoing our countertops. We have to go with stone, as that is now the expectation in this community. But would you go with granite or quartz? Quartz would be $800 more, but you don't have to reseal it, 10 year warranty, more durable, antibacterial, etc. Any chance of capturing that money when we sell? I'm not worried about the overall countertop cost, but about the difference between the two materials. I like the colours and perks of the quartz, but we're only going to be here another 2-4 years.
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Postby Baker » Sat Jul 21, 2007 3:22 am

sandycheeks wrote:re these shows:
1. the amount they say they spent on an upgrade seems very low. We are bargain shoppers/renovators and could never match the prices they quote. 2. the labor costs they quote are even lower. We speculate that they are using majority unskilled day pickup work, not the kind you get from a staffing agency. I don't take the prices they quote seriously.

I think the price you get for a house is based mostly on comps.


Honestly I find their material prices to be absolutely outrageous. You can almost always find the stuff cheaper then what they say they pay. As far as labor cost its completely different in every are, by very large numbers. Labor in chicago that runs $50/hr would at thee most $25/hr in many southern states if not even less than that.

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Postby tinyhands » Sat Jul 21, 2007 8:34 am

consultantjournal wrote:Any chance of capturing that money when we sell? I'm not worried about the overall countertop cost, but about the difference between the two materials. I like the colours and perks of the quartz, but we're only going to be here another 2-4 years.

Just like with the appliances, I think 2-4 years is too far away for anyone to be able to predict whether or not you'll get any of your money back. Considering that there are about a thousand variables that go into home prices, how would you even know that the quartz countertops are what made someone offer you $200,800 instead of $200,000 for your home? Assuming that a bidding war doesn't break out over your home, would you really turn down an offer that is within 0.4% of your asking price? If you like the quartz, and it's not something TOO trendy that isn't likely to appeal to anyone else, get it and don't worry about if you have to pay to enjoy it for the next 2-4 years.
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Postby pf101 » Sat Jul 21, 2007 8:37 am

Baker wrote:
sandycheeks wrote:re these shows:
1. the amount they say they spent on an upgrade seems very low. We are bargain shoppers/renovators and could never match the prices they quote. 2. the labor costs they quote are even lower. We speculate that they are using majority unskilled day pickup work, not the kind you get from a staffing agency. I don't take the prices they quote seriously.

I think the price you get for a house is based mostly on comps.


Honestly I find their material prices to be absolutely outrageous. You can almost always find the stuff cheaper then what they say they pay. As far as labor cost its completely different in every are, by very large numbers. Labor in chicago that runs $50/hr would at thee most $25/hr in many southern states if not even less than that.


Both labor and materials vary depending on area - and how you shop. Labor in Chicago is expensive because it's union.

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Postby consultantjournal » Sat Jul 21, 2007 8:39 am

Yeah, that's what I was thinking. But it's hard to know when all the flippers/pro renovators are coming in and going higher end with things. I mean, why are *they* spending money on these things? These are homes in the $600-$800/sqft range and I can't make sense of how they make decisions.
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Postby tinyhands » Sat Jul 21, 2007 9:17 am

consultantjournal wrote:I mean, why are *they* spending money on these things?

I haven't seen the specific show(s) you're talking about, but the ones that I have seen are just one giant advertisement for the products they're installing. Considering that HGTV has two shows entitled 'I Want That!' and a link to a products marketplace on their website, I have a hard time believing they're remotely impartial.
Read my 'fiscal fitness' financial disclosures <a href="http://www.getrichslowly.org/forum/viewtopic.php?t=176">here</a>.


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