Investor Tip: Don’t make the house too large

Pricing map shows that this house stands alone.

This house has no comparable sales; it is too big.

Generally, investors can add quick and easy value to a property. When you can add square footage at $75-$85 and sell it for $150, the value is clear. Moving a wall or adding a three-hundred square foot room may only cost $25,000, but you can add $45,000 to the value of the home.

Before you add square footage, check local listings to see how big existing houses are. If you are the fifth person to expand your home, you may be hurting yourself more than helping.

Take, for example, the property shown in the image above. The property is huge for the neighborhood that it is in. It possesses a massive 3,580 square feet of expansive rooms that are lined with beautiful hard woods.

The problem is that the nearest comparable properties are in the country club, and they are too far away to truly be comparable in the eyes of the local buyers. If this property were located just a little more to the north west (like across both College Ave and Oswell St), then it might be able to sell for as much as $700,000, but because it is in the wrong location, the listing expires at just $380,000 (that’s just $106 per square foot!).

We do not see a comparable property appear for this home until we reach 2,700 square feet. Which means that this house is 1,000 square feet larger than the largest house in the neighborhood. No wonder people are hesitant to buy. When all the houses on the street are selling at $250,000 and this seller wants $380,000, it is hard for the buyers to understand the value of the larger house.

The lessons for all investors is this: When improving a house, never exceed the local market conditions. In this case, it means not adding square footage to a house that is already too large for the neighborhood. In other cases, it means not installing an HVAC system when a “swamp cooler” will do, not installing hardwood when the neighborhood expects carpet, and not installing solid counters when the neighborhood expects tile.  Build to the expectation of your buyer, and you will sell your investment properties much more quickly.