Last Updated on June 13, 2020 by Mark Ferguson
I have flipped more than 190 houses in my career, remodeled rental properties, and even fixed up properties for banks when I was an REO broker. Over the years, I have learned a lot about what repairs or remodel projects add the most value to a home. It can be easy to miss simple things that will add value or spend way too much on home renovations. The type of house, price range, and location can also impact what the most cost-effective home repairs will be. In general, there are definitely some repairs that will add more value than others.
Is it worth it to make home renovations?
A lot of people who are thinking about making home renovations or repairs wonder if they are better off just selling the house for a lower price instead of making the repairs. If the home needs $20,000 in repairs, just lower the price of the home $20,000 or $25,000. In principle, that sounds great, but it is rarely the reality.
When a home needs repairs or updating, it often lowers the value of the home by much more than those repairs will cost if the repairs are done cost effectively (more on that later). If a home needs $20,000 in repairs, it might lower the value of the home by $40,000.
Home repairs can also impact the financing available on properties. If a home needs a new roof or the major systems need work, it might eliminate 80 percent of buyers because they won’t be able to get a loan on the home. $20,000 in work might decrease the price by $60,000 if it impacts the financing choices.
In other cases, it is possible to spend more money on renovations than it will to increase the price of the home. You can over-improve a home for the neighborhood. I have seen people spend $50,000 on a kitchen that added $20,000 or less in value. The homeowners could have spent $10,000 on the kitchen and still gotten $20,000 in value added. A $50,000 kitchen is usually not needed unless you are in a high-end neighborhood.
It is almost always worth it to remodel or repair a home before you sell it if you are smart about what you do and keep the budget reasonable.
What are the most important things to fix?
When selling a house, the most important things to have in working order are the major systems because they will affect the ability to get a loan on the home. If the roof is bad, the electrical is bad, the plumbing is bad, the HVAC is bad, or the foundation has major issues, most buyers will not be able to get a loan on the home.
Not only will you be eliminating 80 percent or more of the buyers, but you will also have to discount the price of the home to make up for the needed repairs. The most-likely buyer will be an investor who wants to make money. The investor does not want to spend time and money fixing up a house just to break even.
Many investors will use the 70 percent rule to determine what to pay for a house that needs work. That rule states they should pay 70 percent of the value of the home minus any repairs needed. So, if a home is worth $200,000 after it is fixed up and needs $30,000 in work, the investor will want to pay $110,000 for it!
$200,000 x .7 = $140,000 minus $30,000 = $110,000
That may seem crazy for the investor to be so greedy, but they are not making $60,000 on that deal. They have many costs besides the repairs like carrying costs, financing costs, buying costs, and selling costs. The investor needs to buy the property that cheap to make the risk worth it.
As you can see, $30,000 in repairs cost the homeowner $90,000! The homeowner might be able to find a non-investor to buy the property, but they will want a good deal as well. Maybe they are able to sell it for $125,000 or $140,000, but the $30,000 in repairs costs them much more than $30,000.
If you have problems with the major systems that prevent financing, those are the most important items to fix before you sell. They are also most likely the most important items to fix if you do not plan to sell as well. Those problems cause issues with financing because they can cause problems with the house. If you ignore those problems, they could cause much more expensive issues like fires, floods, structural problems, or sickness.
A really good real estate agent can let you know what problems with the house will cause issues with financing.
How do home improvements add value?
Unfortunately, repairing the roof may not add value to the home. If the home is worth $200,000 and you repair the roof, it is still worth $200,000. The buyers expect the roof to be in working order. While the new roof won’t add value, a bad roof certainly will detract from the value.
Some home improvements will add value, like remodeling the kitchen, baths, adding a deck, or even adding an addition. The amount of money these improvements add can be very difficult to calculate because every house is different. Every house is in a different location, is in a different condition, and has different features. Each buyer also has different tastes. The house shows that tell us exactly how much each project adds in value drive me crazy because there is no way to calculate that. You have to look at the big picture. You can spend $100,000 remodeling a house, but if the foundation is bad, you may have just wasted a $100,000.
The way you value a home is by comparing a house to recently sold houses in the same neighborhood. No two houses are the same, so it is impossible to say one kitchen added $10,000 or another bath added $5,000. But, you can say that the house sold for $10,000 more and has an updated kitchen and baths. Those kitchens and baths had something to do with the value, but there could have been other things that detracted or added to the value as well.
People’s emotions also play a huge role in how much they will pay for a house or what house they will buy. A lot of people think our carpet is bad or the house needs paint, but those problems will not affect the financing. We will just offer an allowance or lower the price a little. Not doing simple repairs can drastically decrease the price as well because most people buy with emotion.
If a house smells, is dirty, the paint is worn, the carpet is old, or even is too cluttered, it will turn off most buyers, even though those are easy problems to fix. I am a house flipper and can easily imagine what the house will be like when I am done with, but most people cannot. Or they let how they feel about a house determine their decision making instead of the numbers or logic.
What are the best home improvements to make?
It is often said that kitchens and baths sell houses, and that is usually correct. Buyers care about the kitchens and baths because those are generally the most expensive to remodel and the most visually interesting part of the interior of a house. As I said earlier, paint and flooring make a huge difference as well.
Paint and flooring
I put paint and flooring number 1 because they give the feel of the house. They can also contribute to the smell and aesthetics. Paint and flooring are also some of the easiest repairs to make and can be very affordable if done right. You can paint the interior of a 2,000-square-foot house for $3,000 to $5,000 depending on the painters and area. Although, many companies will prey on homeowners and charge much more if they can.
New paint and flooring can easily add $10,000 to $30,000 of the price of a $250,000 home. I always suggest neutral colors that will appeal to most people if you are looking to sell.
The kitchen is the first thing many buyers consider when buying a house. How much space is there? How functional is it? How updated is it? We remodel many of our kitchens but not all of them. We rarely, if ever, put in high-end kitchens into our projects. A lot of contractors will try to convince homeowners they need $50,000 kitchens when that is rarely the case. Sure, it is nice to have a Bentley instead of a Honda, but does that car make sense for your family and budget? The same goes for the house you live in. We buy cabinets, counters, and appliances from Home Depot, which makes most of the materials for our kitchens less than $5,000. Sometimes, we might spend another $1,500 on upgraded counters.
A new kitchen can add $5,000 to $15,000 to the price of a $250,000 home depending on how bad the old kitchen was. If the kitchen is not that bad, you might be able to get away with new appliances or new counters and save a ton of money.
Bathrooms are another area of the house that can add a lot of value but also cost a lot of money! We can put in a simple bathroom with a new toilet, tub, surround, and vanity for $3,000 to $5,000. That assumes some plumbing and electrical work will be needed. If you have three bathrooms to remodel, your budget can increase very fast when redoing each bathroom.
It is also possible to get super fancy and spend $20,000 on a bathroom. Again, you will almost never get that money back unless you are in a very high-end home and the other homes around you have very high-end features that buyers expect.
Upgraded bathrooms will add value to houses, but it is hard to put a number on them. $5,000 to $20,000 can be added depending on how many bathrooms and how bad they were before. As with kitchens, if the bathrooms were not in bad shape before you might able to get away with new vanities and not mess with the tubs or shows, which can save a lot of money!
Light fixtures, door handles, and even plumbing fixtures can add value as well. If you are smart and do not break-the-bank buying fixtures at high-end specialty stores, it is usually worthwhile to put in new fixtures. If you put in new fixtures, you may be able to get away with not spending as much money in other areas as well. If you replace the old faucets, you might not have to replace the sink or the bathtub. If you replace the door handles, you might not have to replace the doors.
We usually spend $1,000 to $2,500 replacing the fixtures. Light fixtures and new paint make a huge difference in how a house feels and can add a lot of value without much expense. New fixtures can add $2,000 to $5,000 to the value of the house, and they can also make the house sell much faster.
We put in simple landscaping on some of our houses and do almost nothing on others. The thing about landscaping is that it can hurt the curb appeal, but many buyers feel they can fix the landscaping themselves. Far fewer buyers think they can replace the bathroom or kitchen. You can get away with less landscaping in some houses than you might think.
In some areas, a sprinkler system is very important and is a must, and in others, it is not as important. Again, what makes sense will depend on the area and other houses in the neighborhood. In some areas, a fence is a must, and in others, not important at all. It is usually not a good idea to spend tens of thousands of dollars on fancy landscaping if your concern is getting your money back out when you sell.
Windows and Doors
Windows and doors can add value to homes, but it is tough to say by how much. What they can also do is detract from the value and make a house hard to sell if they are old and outdated. Most buyers will expect a house to have newer windows, and old, plain doors can really detract from the look of a house.
The tricky part with windows is the cost. We can buy windows at Home Depot and have them installed for about $300 a window. That could be $1,500 to $5,000 on a house total. Those windows often add about as much value as they cost, but they make a house much easier to sell.
What can really cost homeowners a lot of money is high-efficiency, low-e windows. Window companies love to try to sell their windows at more than $1,000 each! You could spend $20,000 on the windows! While it is nice to save a few bucks a month on electric bills, (that is literally the difference between low-e and regular Home Depot windows) it will not come close to adding that much value to the house. 98% of buyers don’t care what kind of windows the house has as long as they are newer. Some reviews even show buyers are no more or less satisfied with the fancy windows than the cheap windows.
Doors will not add much value to a home either, but they can detract from the value if they are broken or old. You may be able to paint doors to make them look decent, but if you have to replace them, it can cost from $150 to $300 per door, which can add up quickly! The doors will usually not add as much value as they cost to put in.
A lot of people want to add additions to their homes, and rarely do they add as much value as they cost. In some cases, the wrong addition can detract from the value! Additions are tough to pull off because most houses are designed a certain way and an addition was not in the plans. You really have to be careful that you are not just adding a room that will cost $30,000 and be useless to 90% of the population.
In most markets, an addition will not be worth it after paying for all the permits, plans, and construction. You might have to do a lot of work to the existing house to make the addition work as well. If you are in a very expensive area where popping the top makes sense, you might be able to pull it off, but you need to be able to add much more value than you think the addition will cost.
Contractors and getting the work done
Something else to consider is that when you have the work done by contractors or professional companies, the prices can vary greatly! Some contractors may charge $50,000 for a landscaping job while others may charge $10,000 for the same work. It is important to choose the right person to do the work and check them out beforehand as well. I have another article that goes into how to find contractors here.
Making repairs is usually a good idea when selling a house. Which repairs to make can be tricky to figure out because every area of the country is different, and every neighborhood is different. You also need to be careful how much you spend on the repairs and which contractors you use when making the repairs. If you are completely lost, a real estate agent can help you with the process, especially if you are thinking of selling soon. They often know which repairs bring the most value in their area and may have contacts for contractors as well.