Prioritize Your Spending on a Budget Renovation
When most landlords buy a home for landlording, it's exactly that--an investment property. As military families, though, we often convert our rentals into investment properties. Before we turn the home into a a rental house, we eat, sleep, share, and live there. The space holds your precious experiences.
This is, in large part, the source of the anticipation that comes with the home buying experience. Yes, buyers want white cabinets and open concepts, but more importantly they want a home. They want a space to call their own, even if just for a few years.
When shopping around for houses, it's a learned skill to be able to see the potential in a home. Don't be distracted by the unruly landscaping; look at how much backyard there will be when that's all cleaned up. That wall dividing the kitchen keeping you from the open concept you're after? You can always knock it down! We knew that we wanted to buy a house way under our budget, because no matter which home we bought we were going to want to put our own stamp on it.
Prioritize Your Spending on a Budget Renovation
Making the decision to buy a fixer-upper is not one to be taken lightly. Despite how easy the Gaines or your other favorite house flipper make it look, a fixer upper is not for the faint of heart. It is a lot of work, not to mention living in a construction zone can sap the life energy out of even the best of us.
Despite all it costs in peace of mind, a fixer upper can give your property forced appreciation. Forced appreciation can also be described as "creating home value." By upgrading key features in your home, you make it worth more.
Unfortunately, forced appreciation is not that easy, so many people spend their money making upgrades to the home for their own well-being or living purposes, but don't consider the potential return-on-investment (ROI) of the upgrade. If your house is a home, then you're right to make the upgrades your want, but if your house is a rental property, then your upgrades need to be forcing the appreciation of your investment.
Where to Spend?
If you're budgeting a renovation, there are some areas of your home that are worth allocating more of your budget to. Being strategic in your home investments doesn't require the prowess of a stock picker, though. Evaluate your upgrade options in the same approach your doctor might evaluate you: consider first your bones, second your appearance, and third your guilty pleasures.
Ron Phipps of Phipps Realty in Warwick, RI shares, "If the roof is leaking, buyers won't get beyond that. I don't care how awesome the kitchen is." Make sure your house is in order. Are there any structural concerns you can address? Is there an issue with the foundation? You generally want to prioritize these, as buyers will often be scared away buy such daunting issues, even if they're not incredibly costly. People hear "foundation" and see dollar signs flying out of their wallets.
If your bones are solid, consider the first impression your house will make on potential buyers or renters. Keeping the landscaping under control is always worthwhile, as first impressions are made in less than three seconds. A fresh coat of paint, quality pictures on a listing, caulking that handle in the bathroom that you always meant to caulk anyway- cosmetic changes don't have to be costly, but can make a significant difference in freshening up a home.
Your Guilty Pleasures
Once the must-haves are taken care of, you can spend on guilty pleasures in your home. Recessed lighting when you already have lights in every room is a really nice add-on, but it's not a must. It won't usually be a deal breaker for new buyers, so carefully consider what the forced appreciation of a guilty pleasure may be.
Where Not to Spend?
The kitchen and the bathroom. You are less likely to earn back investment in a major kitchen or bathroom remodel than you are to get back what you spend on new siding. The only home improvement likely to return more at resale was a minor (roughly $15,000) kitchen remodel, according to Remodeling Magazine.
It's Only Yours for Now
Buyers are going to want to make your house into their home. You'll want to renovate enough where there are no obvious red flags to the house, but not too much where they can't see how to turn it into their home. Or, maybe you will.
When it comes down to it, the decision is all yours. You can choose to spend on your house with whichever approach you'd like: a homeowner or an investor. If you do decide to spend on your home as an investment, hoping to force appreciation, be strategic and focus on home maintenance rather than guilty pleasures and you'll be setting yourself up for more financial success.