There is rarely a week that I do not receive a phone call asking if it makes sense to add a swimming pool, guest house, second story or central air conditioning. Granted, to add air conditioning is not nearly as big of a commitment as adding a 2,000 square foot second story. One of the first things I ask is, “How long do you plan to stay?” “How well do you like your home and neighborhood otherwise?” “How long have you lived here?” “How much do you still owe on your home?” “Are property taxes an issue of concern?” My immediate response is, any improvements you make may at best yield 100% return, but don’t count on a return of greater than what you spend in most cases. Perhaps one may receive a return of up to 130% on an exquisite landscape job, or maybe when adding a second bathroom to a home that only has a single bath to start with.
On the other hand, adding a swimming pool for example may only yield a 50% return, because not everyone wants a pool and in some cases a pool can take away a grassy play area for children. That does not mean that you should not add a swimming pool. You would add a pool for your own purpose, not as a means to add additional value to your property. As a rule of thumb, if you plan on staying in your location for at least 4 years, I would not hesitate to make whatever improvements you find suitable to enhance your lifestyle. If your plans could quickly become different at any time without notice, you should perhaps rethink your position, knowing that you may not receive a full return on your investment. Your property taxes would probably increase significantly if you were to purchase a new home of greater value than the home you are selling, which is also an important consideration. Keep this in mind as well.
Contrary to everything I have written, professional flippers to this point have been very successful making profits by taking a total fixer upper to the studs and transforming it into a virtually new home. Be careful however, thinking you can do the same if you’ve never done it before. It’s not as easy as it appears. Today, there are primarily two significant types of buyers. First, those who don’t mind a home that needs work and is priced accordingly. And second, those who want a turn-key absolutely done state of the art gem, ready to move in, without lifting a finger. Homes that are partially updated with other improvements still needed often sell for less than anticipated and to the disappointment of a homeowner, who has made recent upgrades and improvements expecting additional returns on the improvements they have made.