Do condo upgrades appreciate property value similar to SFH?

Question

Generally speaking, do upgrades such as kitchen remodeling, flooring, and bathroom remodeling cause the same forced appreciation as single family homes or similar properties?

Russell Brazil · Answer

Its not a given by any means that they force appreciation in SFH's.

The market speaks to us on these topics, we just need to know how to listen.

Every SFH neighborhood, every condo building will be different.

You need to look at the comparable sales for either to see if there is a price difference between dated and rehabbed. There might be....or there might not be.

Pat L. · Answer

We had the same issue. We bought a condo in a high demand area for an aging parent back in 2008. Values were down & we took a variable rate mortgage. When she passed away we were advised to blow $20k to upgrade the kitchen to make it sell. There were 5 for sale in the building, so we decided to go mid-price 'as is', let the new owners upgrade it to their taste. We signed the sales contract on a Tuesday & had a confirmed unconditional offer in 3 days & we made a very nice profit.

Now the SFH's that we have acquired were rehabbed & that has definitely paid off. My daughters home was completely rehabbed & sold about 7 years later (in 3 days) for double what we had in it (& that included putting in two completely new kitchens after she got bored with the first).

Dan H. · Answer

Rehabs can add value to condos or SFH.  But you need to know what you are doing and what adds what value.  Flippers and BRRRR investors do this all the time and I do consider it forced appreciation (different type of forced appreciation than increasing rents on a commercial property).  The challenge is to know and recognize the cost versus the value that will be added.  This depends on numerous factors including the local market, the existing condition, the cost of upgrade, etc.  Most first time flippers do not achieve a good return for their effort because many times the cost to rehab is less than the value added.

We look for a two to one return on our value add costs.  For us to achieve this level of return in our market the unit has to be more than dated, it has to be thrashed.  Old cabinets when replaced will have a similar cost as replacing old and broken cabinets.  Assuming I paid for what I received, I should have paid less for the unit with the old and broken cabinets than the unit with dated but usable cabinets.  This implies I will achieve a better return on replacing the old and broken cabinets.

To answer the OP's question, a rehab can produce positive return above the cost of the rehab for a condo (just as it can for a SFH) but it has to be done with various skills to ensure a good return.

Good luck

Jaysen Medhurst · Answer

First off, @Sebastien Carriere, that's not what "forced appreciation" is. Forced appreciation only applies to commercial properties (5+ units) where you increase income and/or decrease expenses and make the property more valuable.

With SFH and condos, generally, you will create some additional value through upgrades, but not enough to justify the cost. If you're comparing two identical condos then you spend $5k to put in granite counter tops in one, that condo is not now worth $5k more than the "unimproved" condo. For the vast majority of renovations/upgrades you do not get a dollar-for-dollar increase of value.

Where the advantage may lie is with differentiating yourself from the competition, which may bring a slightly higher price, but ideally reduces your time on market and lowers holding costs/vacancy.

Do condo upgrades appreciate property value similar to SFH?

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