MONEY Ask the Expert

Home Improvements That Add the Most Value

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: I’m hoping to sell my house in the spring, and I’m told the place could use some freshening before I put it on the market. I don’t have the budget to fix everything, so which are the best projects to invest in if I want to get some of that money back when I sell?

A: The good news is that after years of sluggish performance, in many places the housing market has started picking up steam again. But that doesn’t mean you can expect every home improvement project to increase your home value when it comes time to sell. Remodeling magazine’s latest Cost vs. Value report shows that, on average, home improvements paid back 62% of their costs at resale in 2014. That’s up from a low of 58% in 2011, but still well below the 87% paybacks of 2005.

Each year, the magazine surveys contractors about the costs for a host of common projects and asks Realtors to estimate how much each of those projects adds to a house. You can’t exactly take the results to the bank, because there are a host of other factors that will affect your payback, from how badly your house needs the work to how common such updates are in your neighborhood. Still, the numbers are handy to keep in mind if you’re investing in a project and also think you may sell within a few years.

Here’s how the 2014 return on investment looked for some major remodeling projects across the country. As you can see, curb appeal goes a long way, ditto cosmetic upgrades of kitchens and baths. For a regional breakdown to see how much these projects would add in your area, check out the full report.

 

Project Cost ROI
Siding Replacement (upscale fiber cement) $14,014 84.3%
Deck Addition (midrange wood) $10,048 80.5%
Minor kitchen remodel (midrange) $19,226 79.3%
Window Replacement (midrange vinyl) $11,198 72.9%
Finish basement (midrange) $65,442 72.8%
Window Replacement (upscale wood) $17,422 71.9%
Bathroom Remodel (midrange) $16,724 70%
Major Kitchen Remodel (midrange) $56,768 67.8%
Add a two-car garage (midrange) $52,382 64.8%
Family Room Addition (midrange) $84,201 64.1%
Bathroom Remodel (upscale) $54,115 59.8%
Major Kitchen Remodel (upscale) $113,097 59%
Master suite addition (upscale) $236,363 53.7%

Source: 2015 Cost vs. Value Report

MONEY home prices

The Surprising Thing That Will Boost Your Home’s Value

Starbucks coffee shop, Philadelphia, Pennsylvania.
John Greim—LightRocket via Getty Images

New research finds that a Starbucks opening in the neighborhood helps local property values.

When searching for a new home, buyers usually consider the usual suspects: square footage, number of bedrooms, amount of sunlight.

Vanessa Pappas had another factor in mind as well: coffee shop proximity.

When Pappas and partner C.C. Hirsch recently closed on a three-bedroom property in Windsor Terrace, Brooklyn, it didn’t hurt that her favorite macchiato place was only a half-block away.

“Coffee is important,” says Pappas, 36, global head of audience development for YouTube. “It’s our daily ritual, and we always go to see our friends who work there. It makes us feel like part of the neighborhood.”

It turns out that easy access to quality java has broader implications. Call it the Starbucks Effect: Proximity to a local coffee shop has a very real, and positive, effect on home values, new data shows.

“We looked for certain markers for where homes appreciated faster than others,” says Stan Humphries, chief economist at real estate marketplace Zillow and co-author (with chief executive Spencer Rascoff) of the book The New Rules of Real Estate.

“Coffee houses emerged early on as a big predictor of future home value. Within a quarter mile, close enough to smell the coffee brewing, that ring appreciates faster than rings further out,” Humphries says.

How much faster? Over 17 years tabulated by Zillow, leading up to 2014, homes adjacent to the local Starbucks almost doubled in value, up by 96%. Those further out appreciated by 65% over the same period.

And apparently not all coffee shops are created equal. Zillow researchers compared homes near Starbucks locations to those near Dunkin Donuts.

Dunkin Donuts-adjacent properties also outperformed the wider market, rising 80% over 17 years, but they lagged those in the shadow of Starbucks.

Of course, there is a chicken-or-egg question here: Are coffee shops causing a boost in home values, or are the popular chains merely locating in promising neighborhoods that are already on the upswing?

Humphries’ discovery: Within the first few years of opening, Starbucks locations are actively helping local home values. After that, the outperformance of the broader market tends to diminish.

Whole Foods Effect

The coffee shop is hardly the only symbol of neighborhood gentrification. Researchers have found other amenities can have an even more powerful effect on home values.

Nearby specialty grocers, for instance, can lead to a 17.5% home-price premium, according to Portland, Oregon-based real estate consultancy Johnson Economics. That compares to a more modest 4.5% for coffee shops.

In that sense the Starbucks Effect might be more accurately be termed the Whole Foods Effect, according to the firm’s principal, Jerry Johnson, referring to the natural food supermarket chain.

Also significantly affecting nearby home prices, according to the Johnson Economics study: cinemas, wine shops, and garden stores.

Given Starbucks’ massive resources, it is perhaps not surprising that the Seattle-based chain is adept at picking out promising spots. After all, the company employs entire teams of professionals devoted to pinpointing optimal locations.

“Where we choose to locate our stores is as important as how we design them,” says Michael Malanga, Starbucks’ senior vice president of store development.

For potential homebuyers, it’s like heading into an exam with the answer key. Assuming that significant market research has gone into every store opening, buyers can piggyback on those positive conclusions.

“There are substantial resources spent by Starbucks headquarters to figure this stuff out and find where the best locations are going to be,” says Zillow’s Humphries. “So for homebuyers, you can essentially draft off the work that Starbucks has already done for you.”

As for YouTube’s Pappas, she’s not a fan of Starbucks. She prefers her local Brooklyn spot—Krupa Grocery. But she isn’t surprised that coffee shops turn out to be a reliable predictor of home-price appreciation.

“Especially in New York City, you want to be able to walk to everything,” says Pappas. “Having a coffee shop within eyesight is a big plus.”

MONEY renting

The Top 14 Things Landlords Wish Tenants Knew

150205_REA_rental_1
iStock

Pay your bills, respect your neighbors, and please hide your weed. Please.

Sometimes the landlord/tenant relationship can be a difficult one. But it does not have to be that way, and it certainly does not have to start out that way. As landlords, we try to get this relationship off to a good start and keep it that way by taking care of our properties and tenant concerns.

But some tenants, perhaps due to past experiences, prepare for the worst and thus approach the relationship ready for a fight. Maybe they have never had a decent landlord. Maybe some just do not know how to act. Whatever the reason, here are 14 tips from our 12 years as landlords to tenants everywhere for a decent landlord/tenant relationship.

1. Pay your bills on time. Seems fairly obvious, I know, but many tenants believe they can pay every other bill before they pay the rent. Want to stay on our good side? Please pay your rent on time.

2. Always try to be polite. I will, too. Being polite and calm really does go a long way. You would not like it if I left you snarky or angry screaming messages on your voicemail. I know sometimes issues can seem to linger on and on, but we really are doing our best to get things resolved.

3. Listen to our instructions. We tell you things for a reason. If we show you how to trip a breaker or turn a gas valve off, listen. It may just save your butt. If we tell you there will be a hard freeze tonight and to please let your faucet drip, don’t call us the next day and complain that your pipes have frozen and you need to do laundry. I can’t control the weather, so you will just have to wait until it warms up.

4. Help us. We try to take care of our properties, but we can’t be everywhere all the time. Is there something we need to know about? Tell us. Is something broken? Let us know. Help us by being our eyes and ears.

Related: How to Find a Tenant in Any Market: A Comprehensive Guide

5. Tell the truth. Did you or your kid flush something down the toilet and stop it up? Then tell us the truth so we can get the problem resolved as quickly as possible. After a dozen years in this business, we can almost always determine the culprit anyway.

6. Please just leave me a message. If we do not answer your call, do not hang up and call over and over again. There are times we simply cannot take your call. How do you think we are going to feel when we finally answer you after you have called five times in a row? It had better be a matter of life or death.

7. Understand that we have a lot going on. Sometimes other tenant’s issues may take priority. We know about your issue, and we will get to it just as soon as we can. We might for example need to make sure everyone has heat before taking care of your dripping bathroom sink.

8. If you get in a bind, talk to us. Communication is key! Tell us what is going on. Did you lose your job? Has your roommate gone off the deep end? We have been there before, and we know what it is like. But if you do not talk to us, there is no way we can help you. Please do not put your head in the sand and hope whatever problem you are having will go away. It will not, and things will only get worse.

9. Treat my property and the people who do work for me with respect. You would not believe how many people are just plain rude to the people we send over to try and fix their problems. Plus, how do you think we are going to react if we see that your place is a mess or that you are causing damage? Disrespecting our properties or our help is a sure way to create an adversarial relationship.

10. Work with me. We know you have a busy schedule. So do we, and trust us, we want your issue resolved as quickly as possible too because we have a dozen or so more to deal with. It all goes much easier if you work with us on times and arrangements. You might have to put up your dog for a day or allow us into your apartment on your day off. We hate to disturb you, but we will be done and out of your hair just as soon as we can.

11. Trust me. We are not going to steal your stuff or try and stiff you. Yes, we know some landlords might, but not us. If we say we need to get into your home, it is for a legitimate reason.

Related: Here is the Best Indicator of Tenant Quality… Hands Down

12. Follow the rules. They are there for a reason. They were explained to you when you moved in, and you agreed to follow them. It just makes life harder for all of us if you choose to ignore them. If you could not live with the rules, then you should not have moved in.

13. Respect your neighbors. Would you appreciate a loud party the night before you need to make a major presentation at work or before your final exams? No, you would not. Remember that you live in an apartment building, and you have neighbors — sometimes very close neighbors. Think about how your actions might affect them. I’m not saying do not have any fun; just try to be considerate.

14. Hide your weed. Just please do this. It is technically against your lease, and you really never know when there will be an emergency and who will need to access your place.

A lot of the above is just common courtesy and common sense. But for those few — and you know who you are — please review and follow the above and let’s make your stay with us as pleasant as possible.

This article originally appeared on BiggerPockets, the real estate investing social network. © 2015 BiggerPockets Inc.

More from BiggerPockets:
I Quit My Day Job, Retired Early & Started a New Venture Using Real Estate: Here’s How
3 Smart Ways to Make an Extra $1,000 a Month Through Real Estate Investing
5 Habits of Highly Miserable Real Estate Investors (and How to Kick Them)

 

 

MONEY mortgages

The Case for Refinancing Your Mortgage—Now

houses with the number 7.3 in them
Adam Voorhes If you're one of the 7.3 million homeowners who could benefit from a refinance, now might be your best chance for a while.

After falling through the first weeks of the new year, mortgage rates are starting to tick up.

At its meeting last week, the Fed did as expected and said it would hold interest rates steady in the near term. While the announcement did little to calm skittish markets, the news could spell opportunity for another group: homeowners who might benefit from a mortgage refinance.

As of the end of last week, the average rate for a 30-year fixed mortgage stood at 3.8%, down from 4.39% a year ago and close to the 19-month low set in mid-January. After falling through the first weeks of the new year, rates are starting to tick up. If you are one of the more than 7 million borrowers identified by mortgage analytics firm Black Knight Financial Services—folks paying over 4.5% and with good credit and at least 20% equity—now could be time to refinance.

It’s worth considering if you think you can shave off a half-point or more. Here’s how to get started:

Go local. Start by calling your existing lender, which already has all of your information and may be willing to cut you a deal on fees (expect to pay up to 2% of the principal). But don’t stop there: Compare that offer to same-day quotes from at least two other lenders, including a credit union, says Bankrate’s Greg McBride.

Think big picture. Even if you’ll be in the house long enough to break even on refinancing fees, don’t forget about the total cost of the loan. For instance, say you’re 10 years into a $200,000, 30-year mortgage at 5.7%. Refinancing into another 30-year loan at 3.8% will save you $390 per month, but you’ll essentially break even on the total cost—and you’ve added a another decade of payments. (Try an online refinancing calculator to see how much you might save.)

Shorten up. For the best deal over the long term, trim the length of your loan. The rates for a 15-year fixed dropped to 3.1% in mid-January, so refinancing that same 30-year mortgage into a 15-year fixed loan will have little effect on your monthly payments, but will save you a whopping $69,000 by the end of the term. If you can’t stretch that far, run the numbers for a 20- or 25-year fixed at the new rate. Alternately, refinance for 30 years and use your monthly savings to prepay your mortgage, suggests HSH’s Keith Gumbinger: “That could accomplish what you want, and if things get a little pinched you don’t have to send in the prepayment.”

Read more about mortgages:
How do I get the best rate on a mortgage?
What mortgage is right for me?

MONEY home improvement

The Cheap and Easy Way to Quiet Banging Pipes

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: We just upgraded to a high-efficiency washer and dryer, and now the pipes are making a racket inside our walls. Every time the machine draws water, which seems like a dozen times per load, we hear a loud banging noise. What can we do?

A: Today’s washing machines use quick-acting valves that slam open and shut in a millisecond, and that sudden change in pressure can cause pipes to jerk. If they’re not fastened tightly to the house’s framing, they can slam against it. This is not just a nuisance; it can also potentially cause premature wear on old plumbing pipes and joints.

There are two potential solutions to so-called “water hammer,” and either one is fairly simple to do yourself if you don’t want to spend the money for (or take a day off to wait for) a plumber.

If you can find the spot where the pipes are banging against framing—meaning it’s not hidden away inside the walls or floors—you can add pipe straps to hold the pipes in place and eliminate the banging. Pipe straps are available for just a few dollars anywhere you can buy plumbing supplies; make sure to purchase straps that are sized for the diameter of your pipes.

If you can’t access the banging pipes, or don’t even want to attempt the hunt, you can also install water hammer arrestors. These are essentially shock absorbers designed to cushion the change in water pressure so the pipes don’t bang and don’t suffer wear and tear from the extreme pressure changes. You can pick them up for $15 to $25 each at any plumbing supply. You’ll want two, so you can install them on both the hot and cold pipes. Attach by disconnecting the washer hoses, threading the arrestors onto the wall spigots, and then connecting the washer hoses to them.

Place a strip of Teflon tape over the threads before screwing on the arrestors to ensure they’re easy to remove later, and keep an eye on the connections during the next couple of wash loads to make sure they’re not dripping.

MONEY buying a home

‘Boomerang’ Buyers Set to Surge Back Into Housing Market

Normandy Shores open house for sale, Miami Beach, Florida, 2014
Jeff Greenberg—Alamy The Miami area is one that could see an influx of 'boomerang' buyers—those who lost a home to foreclosure but are ready to get back in the market.

More than 7 million homeowners who suffered a foreclosure or short sale during the housing crisis are poised to become buyers again.

Over the next eight years, nearly 7.3 million Americans who lost their homes in the housing crash will become creditworthy enough to buy again, according to a new analysis.

RealtyTrac, a real estate information company and online marketplace for foreclosed properties, estimates that these “boomerang buyers”—those who suffered a foreclosure or short sale between 2007 and 2014—are rapidly approaching, or already past, the seven-year window “conservatively” needed to repair their credit.

This year, the firm expects, more than 550,000 of these buyers could be in a position to get back into the market. The number of newly creditworthy individuals will then top 1 million between 2016 and 2019 and gradually decline to about 455,000 in 2022.

Screenshot 2015-01-27 10.30.07

RealtyTrac notes that the return of these former homeowners could have a strong effect on housing markets with a particular appeal to the boomerang demographic: areas with “a high percentage of housing units lost to foreclosure but where current home prices are still affordable for median income earners” and a healthy population of Gen Xers and Baby Boomers, “the two generations most likely to be boomerang buyers.”

Based on those criteria, the analysis targets metro areas surrounding Phoenix (with an estimated 348,329 potential boomerang buyers), Miami (322,141), and Detroit (304,501) as the most likely to see an uptick in return buyers.

Chris Pollinger, senior vice president of sales at First Team Real Estate, told RealtyTrac that previously foreclosed Americans shouldn’t rule out another try at homeownership. “The housing crisis certainly hit home the fact that homeownership is not for everyone, but those burned during the crisis should not immediately throw the baby out with the bathwater when it comes to their second chance,” Pollinger said.

Here are the top 10 areas that could see a boom in boomerang buyers:

RealtyTrac

 

MONEY Housing Market

Why More Home Buyers May Be Trading Up to Bigger Digs This Spring

fish jumping into bigger fishtank
Phil Ashley—Getty Images

A tight inventory of houses for sale has been stymying buyers who want to trade up. That could change soon.

Joe and Debbie Valerio, a couple in their 60s, put their Westport, Conn., home of more than 20 years on the market because it was getting too big for them.

When they found a nearby condo they loved, they pounced. That set off a chain reaction allowing Peter and Leah Baiocco, a couple in their 30s, the ability to trade up.

The Baioccos lived a few miles away, contemplating a future move to a bigger home once kids came along. With favorable economic conditions, they jumped at the chance to buy the Valerios’ $2.7 million house last April. After renting it out for nearly a year, the Baioccos’ starter house in Fairfield, Conn. is on the market for $739,000.

This seemingly simple sequence of events is still relatively rare in the U.S. housing recovery. Despite an improving economy and rock-bottom rates, inventory of available homes is inconsistent. Anything more than a trickle of listings sends prices down, causing sellers to pull their homes off the market.

Then prices go up again because competition gets fierce, and sellers re-emerge. As a result, a bustle of trade-up activity is expected for this spring’s selling season, before conditions change again.

“I think a lot of people have made a lot of money in the stock market the last few years. People who want to enjoy a luxury home, now is the time. Everyone has more cash available to them,” says Ken Barber, a real estate agent in Wellesley, Mass.

Other positive signs: new single-family housing starts are at a high since 2008, according to the Commerce Department’s latest report.

Also, fewer homeowners are renting out their homes to delay selling them, down to 35% in 2014 from 39% in 2013, according to Redfin, a real-estate brokerage.

And more consumers have positive equity. Last spring, 19% of homeowners in Redfin markets (such as Atlanta and Philadelphia) had low or negative equity. That was down to 11% in November. Nela Richardson, Redfin’s chief economist, expects it to hit 8% by March 2015.

Even better for buyers, interest rates are near-historic lows below 4%. “The question of staying versus leaving is shifting. For people who were afraid to leave their mortgage because they thought it was the best they’re ever going to get, now there is another good mortgage around the corner,” Richardson says.

Those trading up in 2015 should hit a sweet spot of selling near the top but not buying at the top, says Margaret Wilcox, an agent from agent in Glastonbury, Conn., for William Raveis.

Wilcox says a client couple recently traded up from a $500,000 house to a $1 million home. They did not get quite the price they wanted for the sale of their old home, but they got a discount of nearly $300,000 on their new purchase, Wilcox says.

There are a few red flags for buyers and sellers. Seller confidence is still low, with just 35% of sellers thinking now was a good time to sell, versus 48% the previous year, according to Redfin.

Keith Jurow, a housing market analyst who writes the Capital Preservation Real Estate Report, is something of a doomsayer and thinks talk of a housing recovery “is phony and only an illusion,” he says.

Given the number of mortgages originated between 2004 and 2010, he feels that too many of the people who would like to trade up still have little or no equity in their homes and are not prepared to do a sale below their purchase price.

“Unless you bring more cash to the table, you can’t trade up,” Jurow says.

Also, foreboding makes some people want to act now. They do not want to be the family that missed their chance, adds Bob Walters, chief economist for Quicken Loans. “People won’t delay forever,” he says.

The Valerios and the Baioccos have only happy thoughts about their real estate choices. They love their new homes.

“In our mind, it’s the house we’re going to be in forever,” says Peter Baiocco.

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