This article was originally published in the April 2018 Think Realty Magazine.
2018 is likely to continue to be a sellers’ market according to recent reports from Trulia. The company released the results of a recent survey of more than 2,000 homeowners indicating that only about three in every 50 homeowners are planning to sell their home this year. While that is not good news for the inventory in most housing markets, it is good news for real estate investors working with homeowners who may not t the “typical” seller mold. Of course, with atypical seller circumstances come atypical properties. This means that investors will likely spend much of their 2018 buying, renovating, and either renting or selling older properties, damaged properties, or properties that are otherwise somehow unusual. It’s the nature of “buying low and selling high.”
“These days, we are going into a lot of homes that are 1940’s and 1950’s construction, which means the remodel is pretty much a complete overhaul,” observed Dallas-Fort Worth-based contractor Blake Johnson.
“These days, we are going into a lot of homes that are 1940’s and 1950’s construction, which means the remodel is pretty much a complete overhaul,” observed Dallas-Fort Worth (DFW)-based contractor and owner of Finishing Touches Remodeling, Blake Johnson. Johnson works only with investors and maintains an active project list of dozens of homes in the area. “That means you have to re-do everything,” he explained, noting that thanks to reality real estate television (of which he has been a part) “you have to take your remodel to the nines” in addition to bringing older homes up to current safety codes.
Not only does this process include updating plumbing, electrical, and other interior systems; it also includes adding bathrooms, modernizing master bedrooms into master suites, and creating updated floor plans in outdated homes. “If you’re going to be jackhammering the entire floor to put in new PVC pipe anyway, you might as well update an outdated floor plan,” said Johnson. He refers to many of these distressed, older homes as the “perfect storm” for fix-and-flippers. “By the time you get in there and you reconfigure two bathrooms and move the kitchen around, you could be looking at an extra $10,000 in your rehab budget,” he said.
Fortunately, all that reconfiguring comes with some pretty solid payoff when the property goes on the market. According to a study by home remodeling specialists Remodeling Image, which was founded by the current editor-in-chief of the company newsletter and real estate investor Alex Biyevtskiy, the payoff on opening up floor plan without adding any more square footage to a house can be as much as 60 percent. Master bedroom additions that “take over” an existing, adjacent bedroom to create a master suite with a bathroom instead of adding more square footage can yield returns as high as 72 percent.
“I recently saw a 1954 split-level where the owner had taken out some walls, redone the entire inside, and turned two bedrooms into a master suite,” said Atlanta-based realtor and investor Lorraine Beato. “ ey got an o er above list price almost immediately,” she added. Beato emphasized, however, that installing a master bedroom or master suite is not a catch-all solution in competitive markets. “Depending on what part of town you are in, you are going to need to have at least three or four bedrooms when your remodel is done,” she said. The same issue goes for the bathrooms. If you co-opt a bathroom for your master suite, make sure there are enough other bathrooms remaining to “go around.”
“For example, in another property with ve bedrooms and two bathrooms, they were able to take an adjoining bedroom and a ‘jack-and-jill’ bath that also attached to the hallway to create a really large master suite,” Beato said. In that project, however, the owner had to install another bathroom since they removed the guest-bath access when they created the master suite. “Now the home is a four-bedroom, three-bath, so it’s still competitive in that neighborhood – and a whole lot nicer!” she said.
Understanding Your Options In Open-Concept Design
Homeowners do not just want “open concept” homes because they are trendy, however. Open floorplans meet the needs of today’s modern, “connected” families in ways that compartmentalized floor plans simply cannot. In an era where everyone in the family is connected to the internet in some form or fashion, many households require an open floor plan so that family members can congregate in a community area even while they all are engaged with various electronic devices.
However, all that open space might start to backfire, speculated e Wall Street Journal in an article published in mid-2017. In that article, psychologists, interior designers, and real estate analysts all agreed that “the pendulum” could swing away from wholly open floor plans (popular in recent years) toward “broken floor plans,” which use design elements like pocket and barn doors, three-quarter walls, or islands to section to areas while still retaining a sense of community.
Given that something as simple as a barn door or a pocket door could, as a design element, net your price tag as much as 13 percent more than a comparable home without these additions, taking advantage of this trend is certainly something that could pay off quickly when the time comes to put your investment property on the market. However, simply adding a barn door without updating the rest of the home is not likely to do the trick. Instead, this type of update is something that should be done in conjunction with other design changes instead of as a substitution.
Also, be aware that a little goes a long way. While pocket doors may serve a practical purpose, too many barn doors simply undermine the installation as a statement piece in your design. The same is true for open-concept design in a home. While it is important to open up the floorplan of older homes to make them attractive and competitive at retail price points, do not go overboard. Be careful to retain some options for privacy so that the occupants of the home can and some space to focus and be alone somewhere other than the bathroom!