Is this a crazy investment idea?

[pinkytoe]

We live in one of the fastest growing cities in the US and own a 50s cottage in a very "hot" location. Things aren't going to slow down anytime soon. The property taxes are eating us up so we will need to move in about two years at the most unless we win the lottery. I have been having this crazy notion that before we sell, we could remodel it and if done smartly....earn an extra $100K or more for retirement when it sells. The goal is to move sto a small university town nearby, pay cash for a house there and retire from full-time work. We owe $80K, the house is valued at $375 as it sits. Remodels around here with added square footage sell anywhere from $500-700K. I think it would be a great adventure but dh is shaking his head at my crazy notion. There are of course all sorts of risks as there is with anything entrepreneurial especially since we are older. What do you think?

[iris lilies]

It's not a crazy idea, it's a pretty good idea because I've observed that most people want a perfect move-in ready house. They have no tolerance (and probably no money) for doing their own renovation if it means living in the midst of a renovation project. That's one of the things you would be doing to "earn" your money--putting up with that mess and stress. It's a good idea if you do the renovation right.

What would worry me most about your plan is adding square footage--that means a major project with a licensed contractor. So that's a big deal. Bathrooms and kitchen remodels are straightforward, little risk operations.

[catherine]

I've observed that most people want a perfect move-in ready house. They have no tolerance (and probably no money) for doing their own renovation

I agree with IL--from my experience selling MILs house, this is exactly right.

However, you want the biggest bang for your buck, so I would look up some of the readily available internet articles about ROI of home improvements. Some things you get almost 100% back (kitchens and bathrooms) and other things you may not see your money back.

I'd also start watching HGTV, because I've learned a lot about what people are looking for in a home these days. It will make you mad and you'll want to kill some of these buyers, but at least it gives you some direction. Houzz.com is another great internet resource for finding current trends.

Be very wise with your expenditures, and try to do as much as you can yourself. If you don't want to do the add-on (which, as IL says is a huge money/time commitment) try to do things in the house that will pave the way for future homeowners to do it themselves easily.

Talk to a few local realtors to see where they think you should invest your money. In my experience, they are MUCH better at seeing your home with buyers' eyes than you are. (I guess they should be--that's their job, but a third party perspective is always valuable)

It's not always "fun" but it is an adventure! If you do it right, it will pay off. If you do it wrong, you do risk putting a chink in your retirement. Good thing is, the housing market is rebounding.

PS. One more thing--if you decide to do it, do it soon, so at least YOU get to enjoy the fruits of your labor for a year or so!

[pinkytoe]

This would involve adding a master bed and bath (we only have two bedrooms now) and just cleaning up everything else. New roof, AC. I have an architect in mind as would need some design work to integrate correctly. He has redone houses in this area for 20 years so would have good refs for contractors, etc. A realtor I met over the weekend who does this for a living offered to come over and look at our house with fresh eyes so maybe I will start there. This whole endeavor would be the opposite of simple living...

[Gardenarian]

Sounds like a great plan to me! What do you think is crazy about it? As long as you keep the cost of the renovations down...

[SteveinMN]

There's remodeling that almost always makes sense (that is, earns the expense back) and remodeling that is simply throwing away money (and, in its worst case, drags the rest of the house down with it). As others mentioned, talk with local real estate agents to find out what is good about your property and what is not so good and see what of it you can fix in a way appealing to the buyers likely to be in the market when you're ready to sell. Be aware, though, it's a moving target.

This is not a crazy investment, but, like any investment, it needs to be approached with knowledge and emotional detachment (which may be hard because it's your home) and the knowledge that circumstances beyond your control (like another market drop) may not give you the return you were led to believe you'd get.

[iris lilies]

OP, I am taking your word for it that yours is a crazy hot real estate neighborhood in a crazy hot area of a crazy hot city, a sellers' market.

Have the real estate guy over, assuming that he knows your neighborhood. Then have over 2 more, ones who have lots of "sold" signs in your neighborhood. They will be very good at telling you what you need to add and where to add it. They will be fairly useless at estimating costs, especially since you are making an addition to your house.

Remind me, you do or do not have architectural covenants for historic standards in your neighborhood that will limit or guide what you do?

[mamalatte]

I second (third?) the idea of consulting with a realtor, especially one who knows your neighborhood. We had great luck with this. Our house was one of the smaller ones in the neighborhood and we consulted with a realtor who had been very successful selling some of the larger homes more expensive than ours. She had some great tips to increase the value, even down to particular paint colors she recommended, and where to get the best bang for our buck. For example, on her recommendation, we did NOT remodel the kitchen, which would have been very expensive, but just got some new appliances and a new countertop. We also "staged" the home ourselves using a very spare decor and fresh flowers, sold at a beautiful time of year weather-wise, etc. We were very pleased with the outcome.

[jp1]

To add to IL's great suggestion, the other thing I would suggest is start going to open houses in your neighborhood. Make notes about the houses, what's been redone well, what's been redone poorly, what's not been redone. Then wait for them to sell and check zillow or other sites to see what they actually sold for. Listing price may not reflect actual sale price. The more knowledge you have about your market the better the decisions you will make and the more likely you will be successful. Also, don't be afraid to talk to the realtors. I would imagine they'll start to recognize you if you're going to all the open houses. Use the conversations both to get info from them and as a "job interview" of them because eventually you will probably need to hire one of them to sell your place.

[razz]

Basically as with any investment decision, do lots of research using the ideas suggested already before spending one cent. Admit how much you don't know first and then start getting some answers.

[pinkytoe]

We have always been house junkies remodeling everything from a 1903 Sears catalog house to parts of our current one. Attending open houses is one of our pastimes.. DH no longer enjoys doing the actual work though so there wouldn't be much DIY. I have lived long enough to know that what goes up comes down so timing is critical if we do this. Our city does not prioritize the value of historic buildings - just on an individual basis. Ours in not historic by any means. The only ordinance is against certain design standards referred to as McMansion rules. The average buyer with bucks is coming from California with cash in hand. To them $700K is a steal. They want what has become the new normal around here - central location, a bathroom for every bedroom, modern, fancy kitchen, wood floors, lots of natural light, blah blah. Still thinking...I feel like Walter Mitty as I get these ideas way too often.

[SteveinMN]

The average buyer with bucks is coming from California with cash in hand. To them $700K is a steal. They want what has become the new normal around here - central location, a bathroom for every bedroom, modern, fancy kitchen, wood floors, lots of natural light, blah blah.
If this is what the average buyer is looking for, can you deliver on it with your house within limits of finances and design? I've seen a lot of houses which have withstood a lot of money and construction being turned into something they could never properly be (open-plan Victorians, shabby-chic ranches). Or should you be aiming at the non-average buyer?

[Gregg]

This whole endeavor would be the opposite of simple living...

A most curious statement. I just don't think of simple living as being all still waters, yoga and tea service (apologies about that to Ishbel, et al as necessary). Things get a little crazy for a while. So what? As long as your chemical make up can handle the imbalance it should be invigorating! There are lots of ways to enjoy life by doing more than moss on a log does. Of all your options, which one would make you want to jump out of bed in the morning?

Back when I did this kind of thing for a living our rule was 3X. If a dollar spent on remodeling would return three dollars or more we did it. If not, we painted. A lower margin is not worth the risk. If you're under that threshold step back and just give buyers a plan and some cost estimates so they can decide what to do. Do it right and your buyers will psychologically feel as though the remodel is almost done: the only thing left to do is the remodeling. That may sound crazy, but it is 100% true.

[ToomuchStuff]

Besides getting your appraisal from the Realtor, I am wondering if you could view some comps to both what you have currently (and see things like time on the market, etc) and ones that did what your talking about?

[razz]

A most curious statement.
Back when I did this kind of thing for a living our rule was 3X. If a dollar spent on remodeling would return three dollars or more we did it. If not, we painted. A lower margin is not worth the risk. If you're under that threshold step back and just give buyers a plan and some cost estimates so they can decide what to do. Do it right and your buyers will psychologically feel as though the remodel is almost done: the only thing left to do is the remodeling. That may sound crazy, but it is 100% true.
Thanks, Gregg, you have just answered a question that I had about replacing the vinyl flooring in my 22 year-old farmhouse ranch. I have been struggling with the pros and cons since I expect to sell/move within a year. The flooring is in acceptable condition now but not great. What I decide in flooring may not be what a buyer would want and the $$ benefit would be limited in the sale price. I will get some cost estimates and leave it up to the buyer who may want to first add a sunroom to the dining area which DH and I had talked about doing earlier.