Remodeling vs Moving (Phoenix: for sale, rentals, credit)

[Solere]

Have remodeling prices come down in the metro Phoenix area since the boom years of 2004-2007? I've heard that a complete, whole house remodel for a 16 year old 2300 sq ft tract house is about $75,000-$100,000 if you want to do it right. If one paid $335,000 for a 16 year old house that's now worth $275,000 but you like the house and neighborhood you're in, does it make sense to spend $100,000 (36% of the current value of the house) on a remodel? You would then have $435,000 into the house and then who knows how many years it would take for the house to appreciate to that level again.


If one were to sell at $275,000, then you'd have a $60,000 loss and could rent remodeled house in the same neighborhood or buy a $200,000 house that's been remodeled in completely different neighborhood.

What factors come into play for you all when deciding whether or not to remodel?

[MotleyCrew]

Actually prices have gone up, materials and labor increased. We are remodeling and yep, can say that prices have not dropped in that department. We think it is still worth it and do enjoy the mayhem.

[Zippyman]

Originally Posted by Happs

Have remodeling prices come down in the metro Phoenix area since the boom years of 2004-2007? I've heard that a complete, whole house remodel for a 16 year old 2300 sq ft tract house is about $75,000-$100,000 if you want to do it right. If one paid $335,000 for a 16 year old house that's now worth $275,000 but you like the house and neighborhood you're in, does it make sense to spend $100,000 (36% of the current value of the house) on a remodel? You would then have $435,000 into the house and then who knows how many years it would take for the house to appreciate to that level again.


If one were to sell at $275,000, then you'd have a $60,000 loss and could rent remodeled house in the same neighborhood or buy a $200,000 house that's been remodeled in completely different neighborhood.

What factors come into play for you all when deciding whether or not to remodel?

Not sure where you got these numbers, or what "complete remodel" means to you. If you know how to shop you can get an awful lot of work done for very little cash right now. If you don't know how to shop or negotiate you'll get rolled, just like during the boom.

As for renting a "remodeled house" - have you seen any? Landlords don't generally do the pergo/granite/travertine/stainless steel (Pergraniteel?) treatment on rentals, the increase in rent never pays off - most rentals will look just like the builder built them, whenever that was ....

As for buying a "remodeled house", remember that house flippers aren't doing remodels out of the goodness of their hearts - it's done for a profit. You'll get lots of "lipstick" if you buy a flip house, but you won't have a new water heater or a high-efficiency a/c unit (unless the previous owner stole them on the way out the door).

I'm seeing lots of "mirages" in the market right now - If you just glance at listings, you'll probably see "cheap" houses in your neighborhood, but if you actually go see them yourself, you'll find they are often the house that backs up to a busy street, or that "fabulous new tile floor" looks like it was laid by a third-grader. I'm seeing some people short-selling clean/nice houses based on their neighbor's dumpy, thrashed-out properties. It's great for the insiders in the market - they're making serious cash off the misinformation & skewed perceptions out there.

My advice - go look over some of those "remodeled properties" - run a search for rentals in the neighborhood you're thinking of renting in - and go see some of those properties too - I bet you'll be underwhelmed.

[Captain Bill]

Happs, you have to look at the numbers for the individual house.

Find a house you like that needs rehabbing. That would be a house you would buy in the As Is condition, which would be at a discount to the move-in-ready market price.

Your goal would be to buy the home at a price where you would be able to do the rehab and bring it up to the current market value.

You don't want to buy a home at move-in-ready price and then spend lots of dollars upgrading it, or you will have a long time to recover the expense.

By shopping for contractors and material prices you can do rehabbing at a good price.

Here's an example:

Current upgraded market value of a property according to comps $300k
Comps have travertine tile, new carpet, granite counter tops, etc.

House for sale needs new kitchen, carpet, paint, and minor repairs.
Cost to rehab $50k

You would need to purchase the home at $250 in order to spend 50k to bring it to current move-in-ready market value of $300k.

A rehabber who does this for a living would have to buy it lower than that in order to sell it quickly, pay holding and sales expenses and have a profit.

They have to make more offers because it's difficult to buy the homes at 65-75% (depending on repairs needed) of market value that rehabbers need.

People who plan to live in the home and contract or do their own work can compete for these homes by paying more and not have to spend months making many bids.

It's a matter of seeing what works for you, but it's all in the numbers.

I can tell you that there are many seasoned and new investors out there looking for properties to rehab. A listing of mine needed rehabbing and I had 4 offers in the first couple of days.

Because the inventory is declining now, and the buyers are increasing in numbers I expect to see increased competition for these properties.

[Zippyman]

Originally Posted by Captain Bill

I can tell you that there are many seasoned and new investors out there looking for properties to rehab. A listing of mine needed rehabbing and I had 4 offers in the first couple of days.

Because the inventory is declining now, and the buyers are increasing in numbers I expect to see increased competition for these properties.

I'd have to agree on this - I've been looking at SFR's to rent out, and the clean/fresh ones are going "pending" in just a day or two after being listed on MLS. There's lots of ugly/damaged properties available, but many couldn't be financed using standard FHA financing, so regular homebuyers have pretty slim pickings and no negotiating power - especially in the lower price ranges.

[azriverfan.]

I wouldn't do it. The stress of a complete remodel is not worth it. That would remove 5 years of my life from the stress alone. Having to constantly call contractors and deal with them on a daily basis and be called on every little thing would drive me bonkers. Peace of mind is priceless. I don't have the patience or the time to deal with a whole house remodel and I dont' think it will really add that much value to your home. I would move but that's my 2 cents.

[Solere]

Originally Posted by azriverfan.

I wouldn't do it. The stress of a complete remodel is not worth it. That would remove 5 years of my life from the stress alone. Having to constantly call contractors and deal with them on a daily basis and be called on every little thing would drive me bonkers. Peace of mind is priceless. I don't have the patience or the time to deal with a whole house remodel and I dont' think it will really add that much value to your home. I would move but that's my 2 cents.

Good point, plus finding an ethical contractor who won't nickel and dime you is tough. If home prices went up at a modest fixed rate per year (2%) it would be easier to make a decision vs having these wild price fluctuations. I'm also thinking that less people are remodeling now vs during the boom years because of the recession and the lack of a home equity line of credit, so in a few years, there might be less availability of remodeled or turnkey houses to choose from.

[Captain Bill]

I was doing rehabbing, but am scaling down for various reasons. However, dealing with contractors and vendors is hard work. You need to know what you're doing or you will pay too much and possibly end up with shoddy work.

If you know what you're doing and can buy a property right, and have time to supervise, and I mean stay on top of the vendors EVERY DAY, then you can come out ok.

You cannot, however, hire a general contractor and walk away expecting to have a great job, because it is not likely to happen.

[Zippyman]

Originally Posted by Captain Bill

I was doing rehabbing, but am scaling down for various reasons. However, dealing with contractors and vendors is hard work. You need to know what you're doing or you will pay too much and possibly end up with shoddy work.

If you know what you're doing and can buy a property right, and have time to supervise, and I mean stay on top of the vendors EVERY DAY, then you can come out ok.

You cannot, however, hire a general contractor and walk away expecting to have a great job, because it is not likely to happen.

I don't think there's ever been a time when you could just write a check and expect perfection in the building trades. You have to be there, and you have to be ready to speak up if something isn't done your way.

[Solere]

How many years do people live in a new tract home in the Phoenix metro area before it gets remodeled?