A reader asks,
This post brings up a question that has been nagging me for a while…does it make sense to put money into a now depreciating asset in anticipation of making it more desirable to sell at a later date? What determines whether or not a house is a “tear down”?
I purchased my house in the early 90’s after it had been completely redone by the previous owners (perhaps making it what you referred to as antediluvian). Luckily, the previous owners were a bit ahead of their time for 1990 and we do have 12 foot ceilings in the family room, playroom, kitchen and master bedroom as well as a double height entry hall. The kitchen is “state of the art 1990 corian” but with the economy lately, I am not going to be updating the kitchen any time soon. I have re-done two of the five bathrooms recently, but I think the others need to be done so the house will show well when it eventually goes on the market. We have put a lot of money into maintenance the past 15 years and built a beautiful pool and have had a lot of landscaping done. Am I crazy to put any more money into my house now that it isn’t worth what it used to be?
Probably – I’ve always thought that any improvements a homeowner makes should be done with an eye towards his own enjoyment of that added feature (like your pool and beautiful landscaping) rather than resale. The law of entropy ensures that whatever you put into a house will age, fall apart, or at least go out of fashion – 10-year-old master bathrooms in trophy homes look positively dated when we agents see them on tour. Of course, the homeowners have been happily splashing away in that whirlpool tub for the preceding decade and, if they weren’t moving, would probably enjoy it for another decade or two without noticing that time had passed them by but buyers see it differently.
So if you want a new kitchen with granite counters and all new appliances and you plan to stick around to enjoy it, go for it. Just don’t count on getting much of your investment back when you move. There are tables out there showing what percentage of the cost of an improvement you can expect to get back upon resale, and all of them are under 100% (and all of them, I assume, don’t figure on your using those improvements long enough to start their deterioration).
If I had a house that I was planning to sell soon I would not put much money into it except to fix obvious structural flaws, like a failed paint job, a rotten porch, a crumbling foundation, whathaveyou (I purposefully mention some big ticket items because these are things that really will hurt your resale value and should be addressed, regardless of expense). I would certainly not waste money on a new kitchen – the would-be buyers probably have different needs and taste than you and updating baths, while nice and which might make your house easier to sell, will not return any gain. I’ve written before of houses I’ve seen that didn’t sell and whose owners were persuaded by their agent to do all these things I’ve just cautioned against. Now they have a house that, overpriced for the neighborhood to begin with, is even more out of whack. Far better to have cut the price $150,000 than to pour that same sum into a sinking ship. Price it right, sell it and move on – you can put your cash into the new house.
What makes a tear down? In happier days, any older house that sat on decent land was quarreled over by builders and first time home buyers alike – picture sea gulls fighting over a fish carcass. Now that the builders are on hiatus there are fewer tear downs and a much better opportunity for young families who can’t afford a mansion to move in, maybe add that new kitchen you so wisely avoided, and live happily ever after. Personally, I like that development; I represent a couple of builders, whom I like and admire, but I also live in this town and I’d be glad to see the return of “normal” families.