Let’s set some money on fire and watch it burn, shall we? Sounds like a terrible idea to me! If you’re doing certain UPGRADES on your homes and assuming buyers are going to shell out the big bucks for them, however, you might as well crack out the lighter. I’m Carole Ellis. I’ll tell you all about it today in Episode 32.
Here’s the cold, hard, frustrating truth: buyers do not appreciate you, the real estate investor. They simply do not have any clue how hard you work to clean up those houses for them, do the repairs, contract out the rehabs and upgrades, and generally create a wonderful home for them to purchase (preferably at top dollar, of course, but sometimes still at an unbelievable discount, right?) Now, as a quick aside, if you want to make a certain SUBSET of buyers appreciate you in a meaningful, immediate way to the tune of 3.74 percent above average asking in your area, check out our latest report in our news and networking section about a PREMIUM UPGRADE that has buyers going ga-ga these days. You can read it at www.rei.today. But right now, we’re not focusing on that happy subset, we’re focusing on your everyday buyers, and let’s face it, they’re a tough audience.
Here’s the deal. When you evaluate a potential investment property, you go in knowing in most cases that the house is likely to start out ugly. This usually means you’re going to need new paint, new carpet, maybe some landscaping and maybe some appliances. And you know that if you put in the investment to make these things right in a property, they’re probably going to pay off in a big way when you sell it for retail value on down the road. However, there are certain upgrades that you may be tempted to make to a property that do NOT pay off even though they SHOULD in a lot of cases because they’re basically invisible to buyers. Even if you tell your clients you made the improvements, most aren’t going to care, and probably aren’t going to pay enough for your property to make up for your investment. These upgrades can be deadly (and if your property needs them, they’re not usually optional) so be very aware of the potential for a smaller payoff before going into a deal where you might have to make them.
One of the biggest invisible upgrades is PLUMBING, PIPES, and DUCTWORK. If you buy an older home, you are very, very likely to have to replace some or all of these, and new codes and regulations will likely mean that you are also implementing a massive upgrade when you do. However, this stuff is literally impossible for buyers to see (and let’s face it, if they can see it, you probably have another problem), and they don’t tend to respond by writing substantially bigger checks for new pipes. So before you buy that property that needs new plumbing, make sure the after-repair comparable value to other properties in the area makes it worth your time and money to put it in.
In a similar vein, electric wiring that is old, outdated, or not to code is also frequently not an optional upgrade, but it’s another one buyers take for granted. Let’s face it, when you flip the light switch, do you think, “Wow, I bet the wiring in my home is AWESOME and I’m sure glad I upgraded it!” if you have ever experienced the tragedy and trauma of an electrical fire, then you might, but most people haven’t and don’t.
Finally, HVAC (heating and air conditioning) and water heaters are also basically invisible to most buyers, but they better work if you’re going to sell a home! Water heaters are relatively inexpensive in a lot of cases, but they come with a special set of pitfalls because many investors want to upgrade them to more environmentally-friendly versions that can be much more expensive. Some markets will sustain and reward this type of upgrade, but, as is often the case with water-heater upgrades, not all buyers care or will pay extra for the privilege of giving Mother Earth a little extra love. Heating and air also can be a hard value sell, since buyers assume they better have good climate control! If you must replace these systems, installing energy efficient ones that have clear positive ramifications on utility bills or “smart” systems is a good way to demonstrate value to buyers and possibly make up some more of your investment money, but you must evaluate the market carefully first.
Want to know the WORST ROI NUMBERS on more upgrades that investors are always tempted to make (or forced to make for that matter?) We’ve got the down and dirty list in the REI Today Vault! Not yet a member? No worries! text REITODAY no spaces, no periods, to 33444 I’ll provide you with fast, immediate access to all sorts of great trainings, news coverage, interviews, and lot more timely information that will help make your investing safer, faster, and more profitable.
And remember, when you do that, you’ll also be able to GROW YOUR NETWORK by interacting with me and your fellow listeners to REI Today… so stop by to ask questions, make comments and network with other investors across the country. Text REITODAY no spaces no periods to 33444 or head over to www.rei.today/vault right now.
REI Nation, thanks for listening in and always remember this:
Your best investment is your own education.
Carole Ellis is the host of Real Estate Investing Today, a popular 9-minute daily podcast focused on educating real estate investors about the important topics that will make their investing SAFER, FASTER, and MORE PROFITABLE. She's also the editor of the Bryan Ellis Investing Letter. She has more than a decade's worth of experience in and reporting on the real estate industry and, additionally, has written dozens of courses on the topic. Carole lives in Kennesaw with her husband, Bryan, and four children. She believes wholeheartedly that your best investment is always your OWN education.