If you are looking to sell your home, most real estate experts will advise you to make at least a few cosmetic improvements to increase the likelihood of getting offers. Certain improvements, however, are more likely to attract buyers and get you more bang for your renovation buck. Here are some of the most in-demand and effective remodeling projects and how to calculate the rate of return on your investment.
Neutral and clean homes sell
The easiest modifications are the ones that bring traffic to your home and create a blank canvass for the future owner. Painting in a way that neutralizes the color palette is one sure-fire way to make your home look new. The most popular colors for buyers are anything in the gray to beige range. These colors are warmer than start white and allow for interesting color contrast on trim work, which should be painted in an off white.
Another clean feature that prospective buyers such as new carpeting. If your wall-to-wall carpeting is relatively new, a good commercial steam cleaning may be all that is necessary. Older, worn carpet, especially those with indelible pet stains, will be major turn-offs to buyers. Make a small investment in new carpeting for a good return on investment.
Kitchens and baths are trendy and desirable
People spend much of their home time in their kitchens. A kitchen is often a family hub. It is the location for morning breakfast and coffee, kids’ homework, fixing dinner, and entertaining guests. Today’s buyers like clean, uncomplicated kitchens with modern-styled appliances and bright color schemes. White cabinets are favored, as well as hard surfaces for countertops such as granite and Corian. A minor kitchen remodel can return up to 92 percent of your investment.
New bathrooms are also in demand. Buyers like comfortable, large showers with updated tile and soaking tubs. Bathroom additions can get costly, though, but it might be necessary if your family is sharing one bathroom.
In order to determine how much profit you can make from a home renovation, you need to combine construction budgeting with real estate investing concepts. When you buy a home — even a home that you are not planning on renovating — your future profit is not defined solely by a future sales price. You need to factor in the expenses of acquiring the property and selling it at a later date. These are your buyer and seller closing costs.
For example, if you buy a house for $200,000, you might put $40,000 down in cash and take out a mortgage for the remaining $160,000. Your lender and other service providers such as appraisal, inspection, title insurance, and legal fees are also going to have a price. Let’s say those total $7,000. For this transaction, then, you would have invested $47,000. Your profit is not the difference between what you bought a house for and what you sell it for, but the difference between what you invest in a property and what you net after its sale. If you sell the house five years down the road for $300,000 but have real estate commissions and other fees of $20,000 and a remaining mortgage balance of $145,000, your profit is $88,000.
A similar analysis is required when determining the profit on a renovation or fixer-upper project. Simply add the total cost of the renovation into your acquisition costs — the $47,000 in the above example — then subtract the total figure from your net from the sale.
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