BiggerPockets

I just read an article on yahoo finance called "6 things you think add value to your home--but really don't" (posted on the bulletins).

#2 on the list is "overbuilding for the neighborhood." Now, this article is directed towards homeowners who eventually want to sell. But this absolutely goes for real estate investors/rehabbers as well. You can increase the the value of your investment up to a certain point, but you have to keep in mind what a potential buyer (or renter) is willing to pay in a given neighborhood, and what the comps are around your investment property.

A co-worker of mine knew an investor who did just that: he overbuilt for the neighborhood. The renovations and appliances he put into his property were not justified by the neighborhood it was in.

He broke a very important rule: Do not rehab a property to be what YOU would live in! Rehab the property for who you will be marketing it to.

Coming from a rental perspective, I just rehabbed two homes to be the best in their particular college neighborhoods.

Results? The students loved it, their co-signing parents loved it, and I'm getting excellent rent with plenty of available deep-pockets to cover the inevitable damage to all the shiny new upgrades.

Wish me luck, though: this year more than ever before my co-signing parents are all attorneys..........

Steve - with my students a majority of their co-signing parents are out of state. I assume if they're affluent enough to send kids to college they own real estate, or at least don't want their credit screwed with a civil action, though going after someone out of state would be a major PITA for me.

Couple years ago I had $4000 worth of damages but after explaining to each out of state co-signer that they were ultimately responsible, that the lease specified that they must reimburse for legal costs, and then dragging one of their kids into court twice - the parents came around and the checks rolled in for the damages.

Getting co-signers for my blue-collar and low-income renters is a great idea, but not too realistic. I have actually had parents of a prospective tenant burst out laughing at the request. That in and of itself DISQUALIFIED that tenant!

Originally posted by Financexaminer

Christie is absolutley right, know the market and do not overbuild, especially with a flip. There are unusual times where we can vary from these standard rules, but usually, she is correct!

All of this is true. But, you still want to insure your product is the best in the neighborhood. I have been guilty of overdoing it for a particular neighborhood. It is an humbeling experience when trying to recoup.
Don

Brian, I've heard of people doing that before. They called it "creating their own comps." I don't think it's a bad idea but it definitely takes time and money (you have to buy multiple houses in one area) to "redefine what the market is."

I don't 100% agree with that especially in this market. A wise man once told me "In this market its a fashion show and a price war" If you can cosmetically over do it, you will a significant result in market time which equals real money. We have put granite and SS appliances in many homes under $150,000. Obvioulsy its very cheap stainless and granite but someone in that price range isn't expecting that. It may cost us $2,000-$3,000 more. We may see a very minor increase in price if any but the Market time is often significantly reduced which saves us a ton of carrying costs and lets us get our money back in play that much faster.