I often have clients call me asking if it makes sense to put in a swimming pool or add on to their home in some other way. I ask, "Are you doing this for yourself or for resale?"; "How long are you planning on staying in the house?" or "Why are you considering this remodel?"
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If they are doing this for themselves and plan to stay a long time, I usually tell them to go ahead and do it. It's their home, and the market does what the market does.
There are times when the market is not cooperative to sellers. These occurrences happen every seven to 10 years and can last three to five years, sometimes longer. It has nothing to do with your house and more to do with the economy and interest rates.
Don't try to outsmart the market by adding on to your home or doing some improvement you think is going to make your home more valuable. Your house is valuable because real estate is scarce and there is more demand than supply. In many areas there is virtually no opportunity to build on a vacant lot unless you tear down a perfectly good house to build a nicer or bigger one.
If you think you are making your home more valuable by adding a master suite or a bathroom, you are probably wrong. Of course there in value to adding square footage or remodeling, but the cost is tremendously high.
If you think you are making your home more valuable by adding a master suite or a bathroom, you are probably wrong.
We used to say that people could bank on a 3 to 1 return if they made improvements. Of course, making improvements is not always simple. You need to think about where you are going to live while these improvements are being made, and you may need to tap into investments to liquidate the cash and worry about potential liabilities and inconveniences. Do you really want to be supervising a remodel and taking all the risks to go through it?
It's fine to do so if you are planning on enjoying the improvements; however, if you are just trying to make extra money, I think there are better ways. I don't see a return on investment being 3 to 1 in today's market unless you have a way of making these improvements for a far lower cost than I would. If you happen to be a general contractor or have a good friend who is, maybe it makes sense. Making improvements is very expensive, and contractors are very busy. Nobody is getting a good deal from tradespeople these days. They have plenty of work and don't need your jobs.
In a nutshell, my advice is this: Make improvements as needed and hopefully do it in good taste. When you are ready to sell, watch the market. Try to sell when the market is on an upswing.
Your improved home will get a lot of attention, but don't be surprised if the new buyer comes in and rips out all your beautiful improvements to suit his or her own needs.
I recently heard of a case where a buyer bought an $11 million, three-year-old house, which was basically built to maximum extravagance. What do you think that buyer did? You guessed it: ripped out everything and spent almost $2 million to change what the previous owners had tastefully done.
Don't try to guess what the next owner will want, because you will probably guess wrong. Live your life. Enjoy yourself. And don't try to outsmart the market.
Ron Wynn has been among the top 100 agents in America for over 10 years, as noted on REAL Trends/Wall Street Journal. Ron has represented over 2,200 sales totaling over $1.5 billion in sales volume in his 30-plus-year career as a real estate broker in California.