When purchasing an investment for the Retail Market, you need to think- What do buyers want in this area? The answer to this is different in each price range and every location. But do your best to put yourself in the buyer’s shoes and define what they really want to see in a property to purchase without going overboard.
What does the buyer want?
- A move in ready home
- Minimal upkeep/maintenance
- Modern amenities
- Curb appeal
- Ceramic tile
- Updated kitchen
- Finished basement
You can find the answers to all of the questions by running comparisons on properties in a close proximity to yours.
The materials that you use when rehabbing will likely be different for properties going to the retail market than for those being rented; there is a higher standard required.
If it’s a retail property then you will want to choose ceramic instead of vinyl flooring, hardwood over carpet and offer premium appliances. Also, choose central air conditioning over window units. You must also consider: siding, gutters, plumbing, electrical, roofing and the kitchen. What you could do cheaper for a rental property you will want to go a step or two up for the retail market as the buyer needs to be thinking that they won’t have to worry about fixing or replacing anything for years to come, as they are buying a recently upgraded and finished product that is ready to move into and enjoy. Studies show that most homebuyers typically stay in a home from three to six years after purchase so the updates that you are making should fit into that timeframe of this usage at the very least.
The upgrades that you do are dependent on the area and potential buyer pool. Generally, ceramic tile can be found cheap enough to install for the kitchen and bathroom, and it looks expensive. Before you decide on tile or vinyl, granite or particle board, consider what amenities other homes in the neighborhood have and try to at least match them in quality. Granite countertops say ‘expensive’ but might be overkill for the area.
Generally a good rule of thumb is to spend your money in kitchens and bathrooms, as you will usually see your highest return on investment in these two rooms. To give you an example, in a good working class neighborhood you can install a $4k-$6k kitchen and it will be great. But for higher end areas consider installing 42 inch cabinets and granite to bring the home up to both the neighborhood and buyer standards, which may run over $10k.
Obviously you want the highest Return on Investment (ROI). As an example, a kitchen remodel will return 66 percent on average and a bathroom remodel will yield a 62 percent return on average according to Remodeling magazine’s annual cost vs. value report. Remember that this report is based on homeowners doing the remodeling and choosing for their taste preferences and higher budget since they will be living in the home. As a real estate investor you want the finished product to be good looking but also come at a reasonable cost to have redone. Try your best to make the finishes look high end without spending a high price.