Real Estate IRA Owners: Best Interior Projects
The 2015 Remodeling Impact Survey – a project of the National Association of REALTORS® has just been released and it has a number of findings of interest to real estate IRA owners – particularly if your strategy involves improving homes before selling or renting.
Overall, the researchers found that remodeling projects were successful – as long as they were defined as increasing the occupant’s desire to be in their home. 64 percent reported increased enjoyment of their home. 54 percent feel happy and 40 percent are “satisfied.” That said, those numbers don’t speak to the chief interests of real estate IRA investors: What are the average costs of common improvements, and do they add value, either in rental rates or in the resale value of the property?
For most projects, the answer doesn’t look good. The data tells us to keep things pretty simple when it comes to getting properties ready for resale, unless you’re going to live in them (which you can’t do if you hold the property in a real estate IRA!)
The researchers surveyed real estate agents nationwide and asked them what the most effective interior projects were when it came to improving a home’s appeal to buyers. Realtors ranked kitchen upgrades, complete kitchen renovations, bathroom renovations and new wood flooring at the top of the list.
Interestingly, these same projects scored very well with the favorite projects among owner-occupants: New bathrooms, complete kitchen renovation projects new master suites and hardwood flooring refinishes.
Again, surveyors asked real estate agents what projects they believed would be most likely to increase the value of the home for resale. They responded:
- Complete kitchen renovation
- Kitchen upgrades
- Bathroom renovations
- Adding an additional bathroom
- New master suite/owner’s suite
- New wood flooring
- Hardwood flooring refinish
- HVAC replacement
- Basement conversion to living area
- Attic conversion to living area
- Closet renovation
- Insulation upgrades
From an ROI perspective, though, the best of these projects were about a break-even proposition when it comes to their effect on the immediate resale value of the property, compared to the cost.
Refinishing the hardwood floors, for instance, costs $2,500, on average, according to remodelers surveyed for the study, and adds about $2,500 to a home’s value.
New hardwood flooring looks like a net loser in most cases, with a remodelers’ cost estimate of $5,500, and realtors estimating a $5,000 benefit to the value of the home – a loss of 9 percent.
One promising idea for some real estate IRA owners might be an insulation upgrade. Researchers reported that an insulation upgrade generally costs about $2,100, and real estate agents surveyed believed the project added about $2,000 to the property value. Which on a property of $200,000 and more is pretty much statistical noise. It’s a break-even proposition on price. But if you are the landlord and you are retaining any exposure to utility costs – or the possibility of freezing or burst pipes, for example – upgrading insulation can be a significant winner under the right circumstances. Especially when a home is woefully inadequately insulated. You could make a big difference in saving on utility costs, but you would only benefit from them as a landlord renting the property. It’s unlikely to pay off much if you’re just looking to fix and flip.
The next best project, from a cost recovery/ROI perspective, was new wood flooring. But even that looks like a net loser in most cases, with a remodelers’ cost estimate of $5,500, and realtors estimating a $5,000 benefit to the value of the home – a loss of 9 percent.
The complete study is available here.
Are you a real estate investing enthusiast? American IRA, LLC can show you how to leverage the benefits of tax deferred or tax-free growth in your real estate investing practice, simply by taking direct ownership of investment real estate within your IRA, 401(k) or other retirement account that you control.
For more information, call us at 866-7500-IRA (472), or visit us online at www.americanira.com.