Kris Krohn here with Limitless TV. What
is actually going to increase the value
of your home? What changes can you make
to it? what alterations? how'd you get the
biggest bang for your buck?
stay tuned.
In understanding what improvements
actually increase the value of the home,
you need to first start by understanding,
what is a home really going to be
defined by anyway in it's worth? I mean
people take a look at a house and then
they assign a value to it.
They don't assign a value to the toilet,
unless it's gold. They don't assign a
value to the kitchen, they don't assign a
value to anything, they just give it a
number. And that is a great question. What
can I do to the home that will actually
bump up its value? You know, there's a lot
of people that think that, how you
increase the value is by upgrading the
fixtures and by upgrading the cosmetics.
Meaning, oh if I change the color the
paint and I have some crown molding and
if I change out the carpet and I put
granite in there, I'll get my money's
worth out of the home. And the truth is,
maybe. But there's a really good chance
you actually won't. Why? Well, the value of
a home is only worth what someone is
willing to pay for it. And that means
that, you need other homes like yours or
like the one you're looking at to have
sold recently in the area. You can watch
one of my other videos where I talk
about how to arrive at the value of a
home. And we're going to talk about a CMA.
A, basically a market analysis and so if
I have six homes in the area that are
just like it that all sold for $200,000,
then guess what this home is going to be
worth if they were all the same?
$200,000. I don't care if you goldleaf
the toilet. I don't care if you put down
9-inch marble slab granite concrete
pouring, feng-shui, cool whatever include
throwing the furniture, because there's
no way that house is going to be worth
anything other than $200,000. So if you
want to go dump 50 grand into that house
to bring up its value, the reality is
that most of that money, not all. Most of
it will be wasted.
All you can do is increase the perceived
value and shrink the time to get the
home to sell faster. In other words, if I
have a home with dated carpet and versus
a home with new carpet, and they were
virtually the same, they will both sell.
But one will sell faster. And maybe
there's a little bit of a difference in
the price. That's what I want to hold on
here in a moment, is I want to talk about,
"alright, so are there things
that I even can do then Kris to
increase the value of the home?" and the
question is yes. But there's also going
to need to be an analysis that we do to
get there.
First of all, let me just share a couple
of things that you can do. When you
perform one of these market analysis,
most MLS's, the systems that do these
across the you know countries and
counties statewide all across America,
they're going to assign a value to
things in the house. One of the things
that's kind of funny is they'll assign a
thousand dollars to a bedroom. What that
means is that, if you're going to go from
a six bedroom home to a seven-bedroom
home, there were just the overall price
by one thousand dollars. Now this seems
kind of crazy only a thousand dollars
for a home. Well, the reality is you don't
get a massive price jump in the value of
your home until you go from a two to a
three bedroom or even less but still
some at a three to a four. Going from a
four to five a five to six doesn't
matter. Going from a 1 to a 2 is massive.
Going from a 2 to a 3 is really big.
Going from a 3 to a 4 is meaningful.
Those things can have a twenty or thirty
thousand dollar price jump even without
changing the square footage. Just by
cutting up the interior. So adding a
bedroom when you have one two or three
bedrooms is definitely a way that you
can increase value. And then the second
thing is just understanding any cosmetic
upgrades that you put in, all it's going
to do is increase the perception and
help you fetch closer to a top dollar.
And then that brings into mind this
crazy component. It's this idea of, wait a
second. If I put in ten thousand dollars
of upgrades, will I get all ten thousand
dollars back out?
That's where we're
headed next. To bring this all together
you need to understand ARV.
Everyone say it, ARV. After Repair Value.
Ok.
This is what it looks like. The question is,
what upgrade should I do? it's going to
depend on your house, the market, but I'll
show you how to do a very simple
analysis and how to hire a person to put
it all together. First of all, after
repair value, that's what really depends
on this. So let's say that I have a house.
And this house has a value
of $200,000
if it's in good condition. But right now,
the house is in bad condition.
And then bad condition,
we are in a seller's market so ironically, it'll
actually sell for $195,000.
And you think,
well that's amazing Chris why would it
do that? Because when there's very little
inventory on the market like in many
places around the country right now
which means they're doing a lot of
building, people are, it raises prices and
people are willing to pay to do their
own upgrades.
If we compare that however
to a scenario where that same house is
worth two hundred thousand dollars and
we are going to invest
twenty thousand
dollars into the cosmetics.
Then what
will happen is,
this house is worth two
hundred thousand dollars no matter what.
If I put $20,000 in,
I can get it at its
value maybe a few thousand dollars over,
but we'll say at its value. And the
house in bad condition, I don't do
anything to the house and I get 195.
Let's look at the net difference.
Here,
I am going to lose,
$5,000
from what I could, because I'm not
willing to put in twenty thousand.
On this example, if I put in twenty thousand
dollars, I will get five thousand dollars
more.
What's the greater loss? would you
rather lose five thousand? or fifteen
thousand dollars?
Well ultimately,
In this
specific situation, it doesn't make sense
to invest in the house.
In a seller's
market, that means that all of the
advantages are to the one selling. Okay
in a buyers market, it's the flip flop
the other way around. That means, there's
a lot of sellers with a lot of inventory
that want to be selling and moving real
estate and they need their homes to be
in top-notch condition for them to get
this price. And so, how do you really do
this math? Here's the shortcut, find a
good realtor that understands investment
real estate and then have them produce a
comparable market analysis to determine
what they think the value is based on
what's sold in the area, and have them
produce two. One, if the house remains in
its current condition and another or the house
is in its prime condition, then the
second thing is, how much would I need to
invest in order to get the prime
condition?
And it'll ultimately look like this. if I
were to give you an example. And I by the
way I do this on every time I ever
disposition and sell a property.
so in
this scenario, if I have a house that is
worth
$200,000
and the idea is,
If I invest
$10,000
how much more will I get out of the house by
putting in the repairs? And if I don't,
what do I sell it for? And so what those
scenarios often look like is, "Kris, you
owe 150,000 and if you invest ten
thousand, you'll get two hundred" in this
situation I am going to net,
40 grand.
Meaning, there's a fifty thousand dollar
difference but I got to pay ten grand to
get all of it. Or, I might be in a
situation where I owe 150 thousand
dollars on the same house valued at two
hundred thousand, but if I leave the
condition and don't do any of the
upgrades, I'm only going to be able to
sell it for a max
of a hundred and
eighty thousand. These are very
real-world numbers that I see on a
regular basis. In this situation, I'm
netting forty thousand, in this situation
I don't invest the money in and I net
thirty thousand dollars.
So question,
is it worth you coming up with an extra ten
grand in 90 days to make an extra 10
grand?
What kind of return would you call that?
That is a 100 percent return.
I put ten grand in and I got 10 more grand out.
So in this scenario, would it make sense
to put more money into the property? Yes.
And it's probably going to be cosmetic
stuff. Maybe it's that bath, that bedroom
trick that I told you about, our bathroom
similar trick like that. But this is,
there are some houses that I put no
money in and I liquidate because by
writing a check and fixing it up, I won't
get more out of the property. Right now,
we're in a seller's market in the area
where I own a lot of my real estate so
guess what?
nine out of ten times, putting a little
bit in will give me a, I put a buck in and I get
two bucks out.
I've also been in the
other side of the market where you put
in a buck and you're lucky if you get a
buck out. So it depends. Get a realtor, run
the numbers and make a choice and that's
how you do it.
You should have a better
idea now of what will actually
create and increase the value of your
home. So, I invite you to go put it into
practice. Kris Krohn here with limitless
TV, and look forward to sharing new
videos with you just make sure you
subscribe.