Can You Still Flip a U.S. House? Best Resale Upgrades

The U.S. economic stimulus package has finally passed, and while no one believes that the housing market will experience an instant revival, if you are planning to buy a foreclosed home on a short sale or have your eye on a home in a hot area that shows signs of revitalization, certain improvements will make your home more valuable and easier to resell than others.

First, it’s always a good idea to include a contractor on a walk-through of any repo ‘deal’ you’re thinking of buying. A contractor will see the property you are considering in a realistic way and will be less likely to underestimate the cost of sprucing the place up. It’s very easy to underestimate costs.

Look for properties with good sound mechanicals, clean lines, and attractive architectural details. Once you think you’ve found a place that is worth working on, make a list of what improvements you’d like to make and estimate realistically what you’ll have to spend to make them.Then you will at least have a sense of what you’re getting into.

Here are a few common rehab projects and the potential for financial return at resale:

Americans now expect high end materials in bathrooms and kitchens.

Adding a Deck: 85% Return Treated wood decks are easy to install, and if you throw in some landscaping you can increase the desirability of your home fast and for not too much money. Even if you have to hire someone to install the deck, the expense is fairly small (in the grand scheme of things), and the return is great.

Kitchen & Bath Remodels: 80% Return Keep in mind that location and price point matters here. If you are buying a home in a nice, desirable area and the kitchen is dreadful, you may well get over 100% return on a kitchen remodel if you make all the right choices and are careful with costs. Without the remodel, you don’t stand a chance of even selling the place in this market.

Kitchens and bathrooms sell homes. Period. A million ‘off’ features disappear if the kitchen and bathrooms are all new and gorgeous. Americans want to see high grade materials in both areas: marble not formica, slate or ceramic tile not vinyl, stainless steel appliances that are new  and all match. Don’t be too unique in your decorating. Neutral colors and clean lines are better than the latest fussy Tuscan faux-finishes. Traditional cabinetry is better than ultra modern looks, which paradoxically ‘age’ the kitchen faster. Shoot for the middle in style, but make it feel expensive.

Replacement Windows: 80% Return If the windows are in bad shape, you have to relace them. It’s just that simple. Vinyl is better than metal, wood is nice but not worth it unless you are in a luxury neighborhood. While you’re at it, replace all the storm doors and any outside doors that look worn or dated.

Siding Replacement: 79% Return As with the windows, if the siding is awful, you have to do this. If the house has cedar shakes that are just faded or peeling, a good paint job may do the trick. If you are looking at older aluminum or vinyl, consider the standard in the neighborhood and match or exceed it. Don’t go very high end in a working class neighborhood, or too generic in a wealthy one. Keep in mind that if no one gets inside the house, no one will buy it, so the outside has to look great.

Basement or Attic Finish: 75% Return You have to be careful here. Make sure you are dealing with a space that can be finished completely and easily and stick with clean lines, neutral colors, and not a lot of fuss. Drywall and raised flooring with tile or carpet is a must. No funky dropped ceilings or wood paneling! Don’t forget to include lots of electrical outlets (for buyers who are into home theater or need a home office) and at least one big closet.

Master Suite Addition: 70% Return Master suites were once a status symbol in American homes, but in recent years they have come to be expected as a baseline necessity in some parts of the country. A master suite is a large bedroom (large enough to accommodate a king bed plus outsized furniture and still look spacious) with at least two (preferably walk-in) closets and a private bathroom(preferably with luxury amenities like a separate shower, double sink, and whirlpool tub). Some neighborhoods require a master suite. You will not sell the home without one. In other neighborhoods, and depending on what you have to work with and what you paid, upgrading to a master suite might be an overimprovement and might even make your home harder to sell. So know your market here.

Dicier, riskier improvements include swimming pools, custom home offices, family room additions, and adding a second floor. Never covert a garage to anything unless there is another garage. Make sure all rooms are repainted in neutral colors, and make sure everything is clean and looks new. Finally, don’t underestimate curb appeal that can be increased with simple sweat equity projects like landscape work, cleaning, and paint.

It’s still true that a foreigner investing in U.S. real estate will have to be ready to hold the purchased property for longer than might have been necessary during the real estate boom. As long as you’re going to be holding that property anyway, why not make it as saleable as you can while the market recovers?