This is the next installment of a 7 part series exploring ideas of why real estate is such a good investment. The focus will be on single family and multifamily real estate, but a good idea is a good idea, enjoy.
Building is a straightforward way to add value. There are really two classifications of it. Either remodeling or constructing.
In terms of remodeling, as mentioned in a prior post, it is important to find a 'quarterback' that knows what and who to ask. Improvements should be thought of in terms of how much value it will bring, it has been said that kitchen and bathrooms are the highest return on investment.
https://www.remodeling.hw.net
Please note that remodels can be thought to 'recapture' value in a house to meet market expectations, in itself it is not a money making activity, but something that should be done to meet the market expectations of condition.
In terms of adding square footage, the considerations is how much it would be to construct, versus how much can be sold for. Currently for entry level houses in North Orange County in a good area would be about $500 per s.f. (1,200 to 1,400 s.f.), a move-up house (1,400 to 1,800) would be closer to $420 per s.f.. The least expensive room additions are either to add a family room (and possibly master bedroom) in the back, or to extend out a living room in the front for a single story home. It would be about $200 per s.f., this would include foundation, framing, drywall, texture, prime, paint, flooring, lights, plugs appropriate for a house.
In terms of new construction, this is a separate and deep topic, the main mental framework I would like to leave you to consider is the fact that California is extreme NIMBY (Not-in-my-back-yard), as a consequence, from vacant land to completion can be 2-3 years for even simple projects. Coupled with the fact that a real estate 'cycle' may take 5-10 years to play out, many builders I know have been saying to not buy land unless you can stomach to hold it for 15 years.
The prices for California is very choppy because the excess demand causes prices to increase, then there is overbuilding due to the time it takes for it to 'come online', and this creates a glut down the road. This is contrasted with a state like Texas, which normally can go from purchase to completion in 6 months to 1 year. Since the demand does not outstrip supply for long, 'bubble prices' tend to not form.
It has been joked that 'conservative states' have affordable houses, and 'liberal' states have houses you would want to live in.
Feel free to #askGene about real estate, it is a little bit of a focused topic for him.
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