Is there such a thing as adding too much value to a fixer-upper?

Question

Hello everyone! Out of the blue my mind seems to always gravitate towards different scenarios involving real estate. At one point, I was thinking of the process of purchasing a fixer-upper and ways to add value to it. However, I am curious to know, is there such a thing as adding TOO much value to a house? After renovations, if a property eventually has an appraisal value that stands out as being much larger in comparison to neighboring homes, is it good or bad? Would love to hear your thoughts regarding this!

Gabriel Tapang · Answer

The appraisal on a home is limited to the comps in the same area so the chance of the appraisal coming back "much larger in comparison to neighboring homes" is slim to none. With that said, you generally do not want to be spending a lot of money on a rehab putting granite countertops and real hardwood flooring if the houses around it have laminate with sheet vinyl because the top end value of the house will be limited to the houses around it. As you can probably guess, best case scenario is to find an ugly duckling in a nice neighborhood.

Jim K. · Answer

@Nikolas Hamon

A lot has to do with what you plan to do with the property. If you plan to sell it, you have a lot of leeway. But if you plan to rent it to people, you need to focus on value-added propositions that end up making YOU money and aren't easy to damage. You do not want easily-chipped exotic granite counters with complex edge treatments. You do not want darling, fragile woodwork and carving. The complex paint job with the faux finishes? NOPE. Appliances that cost the earth to replace? Absolutely not.Even if you do plan to sell it, as @Gabriel Tapang pointed out, you do not need to put in an inlaid marble tile floor in the dining room of a $160K townhouse condo in a development with 350 other largely identical townhouses. That will not add as much value to your appraisal in this development as it would in other places. You should show similar restraint with Brazilian acacia hardwood flooring. It's not going to be valued much higher than cheap new laminate down the street.

Hope these examples help. Especially saying a loud and assured NO to the inlaid marble tile floor idea would have helped me a few years back.

Max T. · Answer

@Will Barnard

When I like where I live it improves my mental health which is something I put a high value on.

Starting out when money was tight it meant I was setting small goals for the property and saving up for them. It also meant I was very attentive to detail in my DIY work, which was quite a bit back then. Learned a lot.

It also meant making things look really nice while using affordable materials. Like basic subway tile but inlaid with a little bit of the fancy $12 stuff. I also had to convince my wife to come along for the ride each time. And although she roughed it with me that summer we didn’t have a bathroom, she likes nice things and she deserves them. So I’m happy to oblige.

These have all become rentals after moving out. They are durable, rent quickly, and to very nice people who always pay and love living there.

I have more of a cushion now and can splurge a little more on material and hire real tradesmen who are much better than me but the mindset is the same.

The friends part is mostly a joke but it’s fun. I just attached a $30 bidet from Amazon onto the downstairs toilet and now everybody who comes over is like 👀 oooOOOooo

Anyways, I guess my point is to not take any 1 persons advice so seriously 🤪. I “blinged out” my places from the get go and it worked out ok. YMMV

Will Barnard · Answer

The short answer is YES!

There are many ways to overspend or over build, all of which are mistakes. Poor design decisions, building a property out to large for the neighborhood, etc. can all be bad to your bottom line. In almost all cases, you simply do not want to have THE largest home in the community. You certainly do not want quartz counter tops when all other comps are tile, etc, etc.

Best bang for your value add buck is kitchens, master bed/bath, room additions, adding additional bedrooms/bathrooms to title (with PERMITS), and presentation - front and rear yards should contain wow factors as the front yard is the first thing potential buyers see.

You also want to pay close attention to the homes on each side and across from you. A run down shack with old cars on the front dead lawn are going to hinder your value!

Jonathan Greene · Answer

You can definitely do too much, but most of that shows up in bad owner choices, bad design, or personal tastes or obsessions. If you are spending smart money in kitchens and bathrooms or on permitted additions, you aren't going to lose that money unless you bought in too high. Assuming your buy-in price was good, the biggest mistakes I see people make are what they think are high-end finishes, but that no one besides them likes. Finished basements are great in most markets, most people want one, but a sauna in a 300k house, probably not, too specific.

James Villarreal · Answer

The appraisal will use comps in the subject’ neighborhood and surrounding neighborhoods. There is such a thing as “over improving” a property. Cost does not equal value. For example, in the Houston market a typical pool with a hot tub will typically receive anywhere from a $15,000 - $30,000 adjustment depending on the neighborhood. It will cost more to add that feature.

also consider anything you add may add curb appeal and help with a sale but not with an appraisal. Prime example of this in my experience is a new fence. A fence is not considered for appraisal purposes (at least, none that I have ever written or seen). It can help get someone to pay more if you’re planning on selling, but not worth if its a hold rental.

Steven Goldman · Answer

As I developed expertise in real estate I learned that a property is only as valuable as the neighborhood surrounding it. whether its a McMansion in the suburbs or an urban 2 story its always about the three Ls of real estate location, location and location. In 1992 I built an amazing 4 bedroom on a 2 acre lot in a subdivision which was 10 years old. The housing prices in the subdivision at the time were around 280-320K. So, basically the value of this unbelievable all white brick and stucco house with two fireplaces and a mancave with a Vermont casting ceramic stove was limited by the comparable properties around it.

So, I definitely overimproved the property considering the property values around it. If you are going to live in the house for years you can wait for the appreciation and pay down the mortgage. If you are rehabbing and flipping it is not a good strategy to enhance the property beyond the clear value of similar nearby properties. A fix and hold is less risky. You must be sure you are close enough to the gentrification to cash in on the property when you anticipate selling it.  One  answer does not fit all.

An aerial of the the property I built can be viewed at: 6388 Winding Road, Coopersburg, Pa 18018  https://www.zillow.com/homedet...

The property is worth 600k today it was worth 309k when I sold it in 1999

Patrick Britton · Answer

@Nikolas Hamon yes, there is such a thing as adding TOO much value to a flip.

The overwhelming number of real estate investors don't have the faintest idea how an appraiser will derive their opinion of value.  Every area is different but in my neck of the woods, rooms, bedrooms and bathrooms in the basement (below grade) or not given any additional value above and beyond what they are.  You have a half bath in the basement?  That's worth an extra $3500 in many markets.  It doesn't matter if the toilet is made of gold and the mirror has been replaced with diamonds.  So, make sure that the cheapest stuff goes downstairs 😊

Cody Neumann · Answer

@Nikolas Hamon

Yes you very easily over renovate if you aren't careful.

As a flipper you should be looking at comparable sales of similar properties in your area to see what sort of finishes they have.

This can include everything from kitchens to bathrooms to the type of flooring you put into it.

You want to be careful to not cheap out on certain areas too.

Will Barnard · Answer

@Max T. If this was serious and not a joke "I say if you’re gonna live there for a few years then bling it out so you have something to show off when your friends come over." - As this is for investment purposes, I don't believe this is good advice. Spending extra money to show off while you live there will not increase your profit in the end! What do you have to show for all that showing off anyways and what does that say about the type of friends you have?

Is there such a thing as adding too much value to a fixer-upper?

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