You’ve bought a cheap house in Arizona and hope to make some money on. Where do you start? You may be wondering what repairs or improvements need to be made to increase the value of the home. To help ease decision making, try to start with the end in mind and create a plan to achieve it. I’ve outlined some basic principles that need to be followed when you purchase a fixer upper or a cheap house in the Phoenix area.
Return On Investment (ROI) – Know your neighborhood and what certain improvements will add to the value of the home. Investment homes can be risky if you haven’t done your due diligence. Recently, I purchased a home from a family that told me that had spent $30,000 on a new kitchen and flooring. The house wasn’t in the best of neighborhoods so when I ran the numbers for the comps, I noticed that the $30,000 they had spent for the upgrades only added $10,000 in value to the house. Talk about a bad Return on Investment.
When you look at a fixer upper cheap house, you need to be able to decide what will add the most value for the money spent. Details are finishing and colors may not matter as much in a cheap house than it would in middle to upper class neighborhood. A general rule of thumb is to try and aim for the 3-1 principle. If you spent $2000 on a new kitchen, will it add $6,000 in value? If you don’t know the answer to these questions, try to study the surrounding neighborhoods and look at the recent sales to determine what they sold for and what improvements were made to the home.
How To Repair Cheap Houses – For things such as curtains, flowers, lights, etc…, you may not be able to estimate the increase in value for each item individually. Instead, you should try to group the many small items together and determine how much value overall it will add to the house. This will help you determine if the end-look of the house will justify the cost.
Things such as paint, flooring and general cleanliness will most often bring the best value for the cost. Other things such as new mailbox, flower beds and a clean yard will also have a high ROI since these items are the things people notice first. The highest ROI in my opinion, however, will come from a good air freshener. There’s nothing worse than a house smelling bad.
Other things that will pay off to replace include: light switches (less than $.30 cents each), new light fixtures, faucets, blinds and/or curtains.
Bathrooms and kitchens are always important to buyers. Often times, a $1000 bathroom remodel will increase the value of the home by upwards of $4000. A new counter top will also satisfy the 3-1 principle. Recently I had a friend that paid $1500 to add an additional bathroom which ended up raising the value of the home by $8000. An additional bathroom in most areas is worth more than an additional bedroom, especially if the home had only one bathroom in the first place.