Ryan C, Home Buyer in Sunnyvale, CA

Cost and ROI of Los Altos remodels

Asked by Ryan C, Sunnyvale, CA Mon Nov 29, 2010

I'm looking for a 4BR home with at least 2500 sqft in Los Altos and I've come across a few places with potential but require substantial renovation. I have been primarily looking at places that are move-in-ready but the idea of remodeling is appealing, at least on the surface.

I'd like to get some ballpark figures for the following

* What is expected cost per square foot for a place that needs mostly cosmetic upgrades - floors, windows, doors, lighting, bathrooms, and a kitchen (at least...)? It's hard to quantify low/mid/high-end finish but I would be looking for something on par with some of the new construction at Satake Estates (if that makes sense as a reference point??).

* How much time should I expect the job to take?

* Will I recoup my costs or will it be less expensive to find a suitable move-in-ready home?

Thanks for the help!

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Answers

5
Bryan Robertson’s answer
Having done many major remodels myself, I'll give you the short answers.

Cost Per SqFt
New construction: $250/s.f.
Remodeling: $300 s.f.
Both figures assume a quality level typical of nice homes in Los Altos of similar quality to Satake Estates. The key is obtaining the best balance of material and service costs which involves knowing where to source them and get good contractors to do the work.

Time To Completion
I've done full home remodels with over-the-counter permits in 5 weeks. That includes remodeling kitchens, bathrooms, floors, windows, doors, etc. but nothing structural. I know contractors who flip homes in Los Altos who can do it in 30 days. It is always assumed that quality is delivered in these efforts as anything less won't fly with Los Altos buyers.

Cost Recovery
You'll get a better value by having the work done. Buy a fixer and put the money into it and you'll have something you could sell for a profit. This is especially true in Los Altos.
0 votes Thank Flag Link Tue Nov 30, 2010
Ryan,

Excellent question that every buyer must deal with, "Do I buy a house that is pretty much done or do I buy a fixer and do the work the way that I want it?" Although I would need more information to really help you, here are some things that you might think about to help your thought process.

Cosmetic repairs (ie. floors, windows, doors and lighting) can be done fairly inexpensively and quickly (4-6 weeks). A kitchen remodel and bathrooms are more expensive and require more time and expense (2-4 months). Combine them and you can be 6 months or more.

What is the basic floor plan of the original house you intend to remodel? Some footprints lead to better additions/remodels. Ie. most 50-60 year old Los Altos homes have small kitchens and baths that not only need to be remodeled, but expanded as well. Where is that space coming from? Ideally if you can find a home that has the space that can be re-utilized. Can you take a 3 bedroom and expand out through the back yard and add a master suite etc.? Lot size becomes more important.

Building costs will depend on who does the work. One local high end builder won't touch a job unless its at $700-1000 a square foot. I had mine done for about $250/ft. I added 700 sf and the total remodel touched about 1100 sf. (note: my work was done in 2004 and took 7 months). I would think an average price would be around $300-400/ft.

Where do you plan to live when the work is being done? Most builders would prefer that you live elsewhere so they can do their work without the homeowner always present. We chose to live in the house and use the monies that would have been spent on alternative housing and put them towards a new bathroom.

How are you going to finance the remodel? A remodel takes cash, do you have it? Will you have to liquidate stock etc. to fund the remodel thereby loosing an asset (the stock) that is (presumably) making money for you. What is the opportunity cost of using your cash to fund the remodel? Buying a home that is done allows you to "finance" the "remodel costs" in the original loan.

How is your family life? Are you married? kids? Do want to keep it that way? An extended remodel takes its toll on all involved (your family as well as your builder's). Unfortunately, I've seen some marriages go through the time and expense of a home remodel only to separate within a few years after the completion of work.

Will you recoup your costs? Maybe. If you buy a home that is done, you already have recouped your costs (assuming the market stays the same or goes up....which is a BIG ASSUMPTION) and you are able to finance the"construction costs" via your original loan.

Recouping your costs on a remodel depends on where you feel the real estate market is going and your holding period. The longer you hold, the higher the probability the market will go up. However, the longer you hold, the higher the probability that the remodel will become old (style changes) and have less resale value.

I suggest that you look at your home as a quality of life investment that hopefully will also be a wise return to your bottom line.

Should you have questions and/or need some scoop on local builders feel free to contact me via e-mail at dblockhus@cbnorcal.com
0 votes Thank Flag Link Tue Nov 30, 2010
Hi Ryan, the return on investment for remodeling costs vary depending on what the real estate market is doing when you eventually sell. As a general rule of thumb, kitchen and bathroom upgrades are your best investment. In Los Altos, your return will be greater on high end finishes than would be in a less expensive area. If you plan on staying in the home for years to come, remodel as nice as you can afford, use finishes that appeal to you (but are semi-neutral) and ENJOY them while you live there.
0 votes Thank Flag Link Tue Nov 30, 2010
Standard construction cost in this area is $350/square foot, but your cost will be based upon the type and amount of work you want done, so that number doesn't mean alot. Same with time to complete any project - it depends on the scope of work. The contractor you chose to do the work may not be able to start immediately due to materials order times or schedule conflicts. Cost and schedule can't be estimated with any accuracy until the scope is established.
There is a general guideline regarding upgrades: if you will stay in the home more than 5 years, do the upgrades you want; but if you are going to sell in 5 years or less, install upgrades that you think will increase the value and "sellability" of the home.
Very few upgrades return more than 75% of their installation cost. The best ROI comes primarily from kitchen and bath upgrades, then bedrooms and family room. Unless you're starting with a home that is trashed and you're buying it super-cheap, it's unlikely that you'll get back what you put into it.
One thing to keep in mind if you're buying/improving specifically for 5 year or sooner re-sale: you don't want to improve the property above the general standard for the neighborhood. It's better to buy the worst house on the street and bring it up to par, rather than buying a par property and making it the best on the street. A problem with making it the best on the street is that there will be no homes the appraiser can use to support your future sale price. Hope this helps.
0 votes Thank Flag Link Tue Nov 30, 2010
Ryan, you are not alone in pondering this question!

Simply stated:

1. The best way to assess the cost of remodeling is to speak with several contractors about a specific property you have in mind. If you're interested, I can give you a detailed strategy for going about this.

2. Whether you will recoup your costs depends on a number of factors (some of which cannot be known), including how long you keep the house before reselling.

3. The conclusion that the majority of buyers I have worked with over the years comes to is that move-in ready is the better way to go. What they ultimately find is that the hassles and uncertainties mitigate against the effort.

Hope that's helpful. Feel free to contact me if I may be of further assistance.

Sincerely,
Dan

Daniel Berman
Pacific Century Realty
Buyer Rebates to 50%
Listing Commissions as Low as 1%
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0 votes Thank Flag Link Tue Nov 30, 2010
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