It wasn’t love at first sight when Mike Ward saw the fixer-upper on an overgrown lot in La Canada, a suburb of Los Angeles. But behind the weeds, worn siding, and faded paint, he saw something that intrigued him: potential.
Ward, an executive producer for Activision, had been commuting to Southern California from Las Vegas. Reuniting his family—in just the right place and in a safe neighborhood—was a top priority. And, something about the run-down, fifty-year-old, ranch-style house on a quiet street told him maybe he’d found just the place to call home.
Ward and his wife, Carolyn, had already scouted out La Canada and thought it would be an ideal place to relocate. The previous owners of the home had passed away, and a daughter was trying to sell the house without listing it with a realtor. Ward was in Las Vegas when the small-town La Canada grapevine kicked in (“We joke that it’s a little Mayberry here,” Ward says). The seller heard that someone might be interested in the house and phoned Ward’s sister-in-law, who lives nearby. She called the Wards, and the rest is history.
“That’s when I hopped a plane,” Ward says. Carolyn was out-of-town, and Mike found himself facing a big decision without the benefit of his wife’s opinion.
“Being familiar with the area gave me enough perspective to recognize a good buy when I saw it,” he explains.
But the decision had to be made quickly. “La Canada is rife with developers. By the time I finally met the owner, she told me she’d already been contacted by a few builders.”
Ward chatted with the owner and explained that he wasn’t a mercenary but merely looking for a place to raise his family. She seemed to like that. He says, “I basically agreed to buy it on a handshake.”
Then, there was the inevitable phone call to Carolyn where he mentioned, “Oh, by the way, honey, I bought a house for us today.”
With the house secured and the marriage still intact, the painstaking business of remodeling the not-so-pretty house began.
The original home was a one-story structure about 1,800 square feet in size, with three bedrooms and two baths. Over the course of the remodel, designed and completed by Carolyn’s brother, Craig Bentz, the little house was transformed into a two-story, 3,600 square foot home, with five bedrooms, four bathrooms, and an office. A new entry was constructed between the living and dining rooms. The patio was pushed out in the back, two setbacks on the front of the house were evened out, and a breakfast nook was added.
“The end product looks nothing like the beginning on the outside, but if you
could look at it top down, the footprint of the slab is about ninety percent of what it was,” Ward says.
A landscaper was hired to clear overgrowth, and eleven months after the project started, a moving truck pulled up in front of the structure and the Wards had their home. The transition from rundown to rejuvenated was complete.
The cost of the project “was more than I thought,” Ward says. “When you remodel, you figure out your budget and how much time it will take, then double both. And I’m only half-joking.”
Still, the project turned out to be a sound investment. “We’re definitely ahead, if we had to sell it,” Ward says.
Not that he’s planning on leaving soon.
“Remodeling was worth it. It was worth it for our family,” Ward says. “I don’t want to move.”
SOME LIVE MORE HAPPILY EVER AFTER THAN OTHERS
Not all remodeling stories have such a happy ending.
Kari Moss, a 1981 management graduate, is a real estate agent with Brough Realty, based in Fruit Heights, Utah. He recalls visiting a home for sale with a young married couple who were looking for a larger house.
“The owner had done the remodeling himself. He did a horrible job,” Moss says. Among the problems: a new Jacuzzi tub in the master bath that leaked (“And it leaked a lot,” Moss says), electrical problems (“Not all the outlets worked after he was done”) and a new roof that—yes, you guessed it—leaked, as well.
“You could tell the remodeling was done by an amateur,” Moss sighs.
In the end, the seller-turned-remodeler’s profit margin dipped considerably when all the self-inflicted damage was repaired as a condition of the sale.
TO REMODEL OR NOT TO REMODEL, THAT’S ONE QUESTION
Staring at your knotty-pine paneled family room walls, you may suddenly find yourself calling out, “Dear, do you think we should consider remodeling?”
“A home becomes prime for remodeling at about thirty years of age,” says Paul Winans, owner of Winans Construction in Oakland, California, and president of the National Association of the Remodeling Industry. “At this point, the main systems are ready for overhaul and rooms such as kitchens and baths look dated.”
Marianne Thelin is a real estate agent for The Meadows Group, which services the sizzling home market in Portland, Oregon. Thirty years may be the prime time for a remodel, but that figure is shrinking, she says. “Now, we see homeowners on the upper end of the scale remodeling every five years.”
Moss, who also managed an R.C. Willey furniture store, says, “Some people buy new furniture every year. They paint, maybe get a new sofa, maybe carpeting, and soon they’re into a remodeling job.”
Remodeling your house to fit the new furniture? Moss says it happens. He even knows of people who buy new homes to match their new furniture.
So more people are picking up the hammer and saw, or paying someone else to, but what about remodeling? Is it a good investment or not? Can you ever expect to recover most of the hard-earned dollars that you sink into a new kitchen, an extra bedroom, or getting rid of the avocado-colored appliances?
The answer to those questions, according to experts in the business is, “It depends.”
It depends on many factors, not the least of which include local market conditions, location of the home and neighborhood norms, where you want to put your remodeling money, and what your plans are for the house. They also warn of the dangers of buying a home with the intent to quickly sell it for a fast, vast profit.
WHAT’S HAPPENIN’ IN THE ’HOOD
Local market conditions play a huge role in how much of your remodeling dollars you’ll recapture, and are a big consideration in whether you should remodel at all.
In places where building is booming, remodeling for investment purposes may not pay off, says Kenneth Wamsley, of Wamsley Appraisal Service in Pleasant Grove, Utah.
“With interest rates still low, most people prefer looking for a new home,” says Wamsley, a 1984 MPA graduate. You may sink a lot of bucks into your home hoping to improve its chances of selling, and then watch helplessly as a steady parade of potential buyers head straight to new subdivisions down the road.
Says Moss, the Fruit Heights, Utah, realtor, “New homes are like the new car smell. A new house is the most expensive perfume in the world.”
Older homes in established neighborhoods that are at least holding their values are better candidates for remodeling. Jeff Fillmore, a 1985 finance graduate, is the owner of The Fillmore Group, a commercial and residential appraising and investment company based in San Jose, California.
“The Bay Area housing stock is aging, and the market is strong,” he says. “That’s a good combination for remodeling.”
Sky-high property prices also make remodeling more attractive. Thelin, the Portland-based realtor, says, “The price of housing is going up so fast here. Homeowners may not want to pay a lot of money for a smaller home on a tiny lot. They may decide, ‘Ok, we’ll redo what we’ve got.’”
SOME THINGS NEVER CHANGE: IT’S STILL LOCATION, LOCATION, LOCATION
Your home’s location should also be factored into the remodeling decision. Sinking dollars into a sinking neighborhood is rarely a good investment.
“Location is still the most important factor in investing in a house,” Thelin says.
But, there’s another twist to location. You don’t want remodeling to make your home stand out from the neighborhood, explains Bill Schultz, owner of Schultz Appraisal in Boise, Idaho, another booming real estate market.
“Beware of over-improving. If you have laminate counters and vinyl floors, and that’s what all the other houses in your neighborhood have, then you don’t want to put in granite counters. It’s overkill.
“The reverse can be true, too. If you’re in a fancy neighborhood, you don’t want laminate counter tops and vinyl flooring,” he says. “Conform.”
Thelin adds, “You don’t want to be the nicest house in the neighborhood. You want to be something below that. Nor do you want to be the least expensive home in the neighborhood.”
THE DOUGH IS IN THE KITCHEN
When it comes to remodeling, everyone seems to agree on one thing: The best investment is the kitchen. Call it the universal truth of remodeling.
“Without question, the kitchen gets the best return. That’s where a lot of living happens,” says Schultz, the Boise appraiser. “When you gather, it’s in the kitchen. At Thanksgiving, you’re all in the kitchen. At Christmas, you may put up a tree in the living room, but the kitchen is where everyone gets together. Our society revolves around eating.”
“People spend so much time there,” says Wamsley, of Pleasant Grove. “It’s the heart of the home, where everyone wants to be. Dollar for dollar, that’s the best place.”
After the kitchen, what comes next?
Says Schultz, “The second best investment is the master suite, for many of the same reasons as the kitchen. You spend a lot of time there.” More closet space and adding a master bath almost always pay off.
Bathrooms are also a safe place for spending remodeling dollars. Basements can pay off too, although Wamsley warns it’s tempting to go overboard. “Basements are good, but I tell people to go with the same quality as the rest of their house. Basements need to complement the main floor.”
Adding or expanding a garage draws mixed reviews. Men seem to like the idea (“We tend to keep a lot of junk and we need a place for it,” Moss says). Women aren’t as impressed (“Only men care about garages,” Thelin affirms).
DON’T TRY THIS AT HOME
Agreement is also close to unanimous about what to avoid when remodeling your home.
“Sometimes, when people remodel, they try to make the house something it’s not,” Thelin says. “You can’t, for example, mix traditional with contemporary.”
What makes an appraiser’s stomach churn?
“Deferred maintenance,” says Schultz, the Boise appraiser. Bad roofs—if your shingles are curling or wavy—and pet odors are at the top of the list. Outdated floor coverings, carpets with footpaths, and bad paint come next.
Swimming pools also give poor returns (“In some areas, you may only receive a ten percent or less return on the cost of the pool,” says Fillmore), as do dens and sun rooms (“If they’re done right they can be ok, but they’re a risk,” Wamsley says.)
An extra bedroom doesn’t do much for the value of your house either. Says Schultz, “Adding a bedroom to a four-bedroom house isn’t going to attract any new buyers.”
Fillmore cautions about additions of “below average utility.” An example is adding a bedroom that you get to by walking through another bedroom or the family room, a definite no-no.
And watch out for trendiness. Today’s trend can be tomorrow’s embarrassment. Like it or not, neutral colors are still best.
June Fletcher is a Wall Street Journal reporter and columnist who specializes in writing about real estate and home matters. “When it comes to materials, don’t overdo it. Adding the wenge wood cabinets you just saw in a shelter magazine may make you feel chic, but by the time it comes to sell a few years down the road, fashion will have moved on,” she says.
SWITCHING THE FLIPS
Three basic groups of people are the backbone of the remodeling industry. First are those who plan to stay and just want to update or make repairs. Next are those who buy a home with an eye toward resale, a growing group, since the average family now stays seven years in a house. Finally, there are the flippers, a small group that has received big attention of late. This group buys homes with the intention of making a few repairs or updating the appearance and quickly selling the property for a nifty profit.
Easy money? It may sound that way, but profits are often not as fast or fat as hoped. “A lot of friends ask me to watch for a fixer-upper they can buy and turn around quickly,” Moss says. “But, too many people are doing that. The market is saturated. They make it look easy on TV, but it’s not.”
Wamsley agrees that if it’s too good to be true, then it probably is.
“There’s nothing wrong with buying and selling property. But if you’re doing it purely for greedy purposes, you need to be careful. There are some hidden issues,” he says. Among them are concealed costs and inducements; unethical contracts or hidden incentives to appraisers and sellers; and pressure from lenders to make prices come out “right.”
“You can be duped,” he warns.
Fillmore, the Bay Area appraiser, says the margin in flipping often isn’t large. “Flipping is generally accomplished with the use of a mortgage. Leverage can create a significant profit, but with a slight decline, leverage can also create significant loss,” he says.
A slight downturn in the real estate market, higher-than-expected remodeling costs, a house that is for sale longer than expected, or paying a realtor’s fee can drain the profit and more from the transaction.
Adds Moss, “People want to make $25,000 or $35,000 on a flip, but they’ll be lucky to earn five.”
DOLLARS AND SENSE
Remodeling, of course, involves more than just dollars and profits. Sometimes, it has more to do with sense.
Fillmore tells of a time when his wife, Sherri, wanted to make some changes in the flooring near the entry of a former home, changes he didn’t think were necessary.
“I didn’t think we needed to replace the tile entry with limestone. But it was embarrassing to Sherri,” he says. “To me, it was all dollars and cents, but Sherri saw that old outdated floor as a reflection of who she was.”
Once he understood that, the limestone was quickly installed.
“It was money wisely spent,” Fillmore says. “It helped her to feel completely comfortable in our home and the reflection it presented to others.”
So look at the bottom line for two families: For their remodeling dollars, the Ward family transformed a neglected house into a home that they don’t ever want to leave, and Jeff Fillmore learned a valuable lesson about spousal relationships.
Some things you just can’t put a price on.
CAN YOU EVER GET OUT WHAT YOU PUT IN?
When homeowners consider remodeling with an eye toward resale, one question always needs to be asked—and answered.
Will we ever recover our investment or are we flushing dollars down the drain?
Paul Winans, owner of Winans Construction and current president of the National Association of the Remodeling Industry, thinks remodeling is generally worth the expense.
“It really depends on the homeowner,” he says. “Homeowners should take a look at their lifestyles as they relate to their homes: how much time they spend there and whether they’d like to sell soon.”
If you’re thinking of remodeling as a way to inflate the value of your house, think again, says June Fletcher, the Wall Street Journal reporter who recently authored House Poor: Pumped Up Prices, Rising Rates, and Mortgages on Steroids, published by HarperCollins.
“Remodeling projects rarely bring you 100 percent return on your investment, but they can be worth it if they bring your house up to neighborhood standards,” she says.
About one million homeowners a year take on a remodeling project. According to the Wall Street Journal, remodeling has blossomed into a $230 billion a year industry.
There are some helps when considering a remodel. One of the best is the annual Cost vs. Value Report, issued by Hanley-Wood, publishers of Remodeling and REALTOR magazines.
In the latest Cost vs. Value Report, the top-value remodeling projects were a minor remodel of the kitchen (average job cost $15,273 with the average resale value of $14,195 for a 92.9 percent return); siding replacement (average cost $6,946, average resale value $6,445 for a 92.8 percent return); and a mid-range bathroom remodel (average cost $9,861, average resale value $8,887 for a 90.1 percent resale value).
On the lower end of remodeling values are sunrooms (a 70.8 percent return upon resale); a basement remodel (76.1 percent resale value); and a major remodel of an upscale bedroom (77.6 percent return).
It’s important to acknowledge that there are many variables, including costs for materials, labor, quality of the finished product, local real estate conditions, and the value of the home itself. But if you’re looking for general trends in remodeling, the Cost vs. Value Report is a good place to start. Copies may be purchased by sending an email to dwarfel@reprintbuyer.com.
Fletcher also says it’s a good idea to literally do your homework.
“Call references to see how homeowners liked working with the remodeler, whether the job was completed on time and to their satisfaction, and whether they’d hire the same company again,” she advises.
“It’s a home,” says Marianne Thelin, a real estate agent in Portland, Oregon. “Some financial advisors will say you shouldn’t count it as an investment. But it can be a bank account for you. You’ve got to be smart about it.”
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Article written by Donald S. Smurthwaite
Photography by Bradley Slade
ABOUT THE AUTHOR
Donald S. Smurthwaite has worked in public communications and as a freelance writer for nearly thirty years. He resides in Billings, Montana, and is the author of six LDS novels. When something needs repairing around the house, he knows exactly what to do: He asks his wife to fix it. Smurthwaite earned his BS in communications from BYU in 1977.
