I am in process of soon to be selling my sister-in-law’s home in Oyster Bay. She has been renting it out for many, many years. We went to visit it to see whether or not repairs and/or upgrades would in the long run provide the biggest bang for her buck in the return on investment. Would she recoup her costs at the point of sale?
It obviously would sell quicker with the necessary repairs and upgrades that would make the place more desirable. However, would the sale price justify the inherent costs and would she receive back at least 100 percent of her money or less in getting to the closing table? It will all depend on the costs of the repairs as well as whatever renovations that would be considered.
The first step is to determine what really needs to be repaired and the money that needs to be spent. The buyer will hire a home inspector to see the pros and cons with the condition of the home. Buyers don’t like surprises and I am quite sure sellers don’t either. I always recommend that owners of any home 20 years or older have it inspected in advance of putting their property on the market to see what things might pop up on the buyer’s inspection.
Once that is determined, the next step is to get estimates and then repair those items. Make sure the company or person you hire has referrals from those he/she had done business with recently as well as a few years ago. An excellent source is Googling for online reviews for the individual or corporation. Also whomever you hire make sure you verify that they are adequately insured with at least $1 million liability/completed operations coverage.
You should also ask for the contractor’s records, a certificate of insurance with your name or corporation name as the person of interest or additional insurance as owner. You want to make sure that if any damages occur that the contractor’s insurance covers those issues and doesn’t fall back on yours.
The next thing to consider is whether any improvements should be done to get a higher selling price or after basic repairs are done should one sell in “as is” condition? One must determine a budget for improvements in advance. But at the same time decide what condition you want your place to be in when everything is completed and calculate if you will get back the money spent on upgrades.
Look for comparable sales of homes within your location with similar attributes, e.g. style, number of bedrooms, bathrooms. By evaluating their condition and observing photos of the homes will help you determine what level your home currently is and where you want it to be. This comparison will provide a good indication as to what you are selling and how you might maximize your profit.
Adding insulation to your attic will give you back a 107.7 percent return and/or adding a new front door will provide an 80.2 percent return of your costs. Minor kitchen and bathroom upgrades will not give you back anywhere near the same percentages, but will assist in selling faster. However, if you plan on staying for several more years and want to enjoy higher end upgrades, then the choice is yours, but you will not get back more than 54-59 percent of your initial costs in the New York region. Here is the link for additional info: https://www.zillow.com/sellers-guide/roi-for-bathroom-remodel/
If it is a rental property, are you aware of the process and method of doing a 1031 deferred tax exchange and rolling the money over to another investment property to defer capital gains? If it is your own residence, leave yourself sufficient time to locate another place to move whether purchasing or renting.
Most important, calculate the following when selling: your initial purchase price, plus add all improvement costs, plus $500,000 if married or $250,000 if single. Then subtract that amount from your sale price, and if there is any profit, you would pay a capital gains tax depending on your income from 0-20 percent. To determine what you might have to pay, the following link will be a guide: https://www.kiplinger.com/taxes/capital-gains-tax/603735/2022-capital-gains-tax-rate-thresholds
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: [email protected] Just email or snail mail (regular mail) him with your ideas or suggestions on future columns with your name, email and cell number and he will call or email you back.