Home Improvements Don't = Increased Property Value

Three years ago, at the height of the Logan real estate market, a friend and me purchased two nearly identical properties in Logan.

Even though the purchase was at the height of the market, we got a really good deal on them. These properties were not properly marketed. They were listed as a multi-family home, when in fact they were actually two completely separate homes with two different TAX ID numbers. They were built at the same time, were exactly the same size mirror images of each other, and were in about the same conditions.

The value of these properties has gone down a bit from what we could have sold them for three years ago, but we are still in pretty good shape in regards to this real estate investment. However, it looks like my approach to the real estate investment will result in a far better return on investment.

We purchased the properties at the same price and with identical down payments, loans and loan terms. We both initially rented out the properties, with positive cash flow.  I was actually able to get more rent for my property than he was because I allowed pets. I wasn’t too worried about pets destroying the shag carpet. Last year when my renters moved out I made my house available as a “lease option” I quickly found renters/buyers who agreed to a lease option price that will give me a net return on investment of $18,000.

The approach to the other unit was much different. As a building contractor, his idea was to improve the 30 year old property to make it more “sellable and valuable.” So while he was between renters, he gave the home a complete makeover by added siding, central air conditioning, new tile, carpet, cabinet stain, paint,  a deck, an external door, new lighting fixtures, sinks, toilet, trees, the works. Not counting his time, he put more than $16,000 into the property. I’ll admit, this property is really nice now, and will likely sell quickly at the right price. It’s much nicer than my unit with the wood paneling and brown shag carpet.

The problem is that the cost he put in to the improvements of the property are less than the value realized. This is how most home improvement upgrades are. The cost of the upgrades is more expensive than the value added.

Now that the property is completely fixed up, and in immaculate condition, he wants to sell it rather than place renters in it who may not treat the nice upgrades so well. If he can get full asking price for the property, (and if it will appraise at the asking price) he’s looking at a net profit of about  $10,000.

Despite what you see on TLC, adding upgrades to homes doesn’t always make a property a better real estate investment.

One Response to “Home Improvements Don't = Increased Property Value”

  1. Leo Loans says:

    Thanks for this article, I got some tips for matters about houses! thanks a lot! I think home improvement loans can help those who are wanting to improve their house but lacks $$$. I

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