Are you wondering if remodeling your home can be profitable? Yes, there are various ways that homeowners can profit by remodeling a property.
How Can Remodeling Your Home Be Profitable?
Remodeling a home and/or property can be profitable during two main types of circumstances.
These two main circumstances include increasing home value for a sale, and increasing rent price for renters. As a matter of fact, these situations can be so profitable that many people do it as a business.
1. Selling Your Home for a Higher Price
Increasing a home’s value by remodeling and selling it for a higher price can be a very profitable thing for property owners.
The value of a home is strongly determined by the living conditions it can provide for the residents that will be staying there. As a result, remodeled homes can be sold for much higher prices as opposed to non remodeled ones in the same areas. A home’s value will increase proportionally to the extent of which the home has been remodeled.
Therefore, by investing in remodeling, property owners can receive much more money when selling their home.
1a. Example of Situation 1
Here is an example of situation #1 in order to provide a realistic point of view for you.
Let’s picture a scenario where a home is worth five hundred thousand dollars ($500,000) in its current condition. The homeowner invests one hundred thousand dollars ($100,000) on remodeling and upgrading the property. As a result, anything more than six hundred thousand dollars ($600,000) would be profit. Therefore, if the home is sold for eight hundred fifty thousand dollars ($850,000) a decent amount of profit would be made thanks to the remodels.
In this case, the amount of profit made by the property owner would add up to two hundred and fifty thousand dollars ($250,000) not including taxes and fees.
1b. Mathematics of Situation 1 Example
Original Home Value = $500,000 (This is how much you will receive if you sell the home without remodeling.)
Extra Cost of Remodeling = $100,000
Home Selling Value After Remodeling = $850,000
So New Selling Value of $850,000 – $100,000 Cost of Remodeling = $750,000 (This is how much you will receive if the home is sold after remodeling.)
The profit would be the difference of $750,000 and $500,000 which would add up to a total of $250,000 profit.
2. Renting Your Home Out for a Higher Price
Increasing a home’s value by remodeling and renting it out for a higher price can be very profitable.
The price of a home is strongly determined by the living conditions it can provide for the residents that will be staying there. As a result, remodeled homes can be rented out for much higher prices as opposed to non remodeled homes. Therefore, cost of rent for a home will increase proportionally to the extent of which the home has been remodeled.
Therefore, by investing in upgrading a home, property owners can receive larger amounts of long term income from the increased price of rent money they receive from their properties. The additional difference would be the profit that they make.
The profit that could be made in this situation would be based on the difference of the upgrade costs and the additional rent price.
2a. Example of Situation 2
Here is an example of situation #2 to provide a realistic point of view for you.
Let’s consider a situation where a property owner can currently rent their non-remodeled house out for two thousand dollars ($2,000) a month. The amount of profit that can be made is based on the difference of money they spend on the remodeling and the amount that they raise the monthly rent by.
If they invest one hundred thousand dollars ($100,000) on remodeling the home with 30 year financing, their monthly financing costs could add up to around four hundred dollars ($400) a month with interest. In this case, increasing the rent by anything more than the monthly financing cost would be profit. Let’s consider if the property gets rented out for two thousand seven hundred dollars ($2,700) as a result of the remode. In this case, the monthly profit made by the property owner would add up to three hundred dollars ($300) in the beginning.
This monthly profit will gradually increase as the cost of interest goes down over time.
2b. Mathematics of Situation 2 Example
Original Rent Price Before Remodel = $2,000 a Month
Cost of Remodeling = $100,000
Monthly Cost of Remodel With 30 Year Financing Based on Terms = Approx $400 a Month Including Interest
Home Rent Price After Remodeling = $2,700 a Month
Profit Made By Remodeling = $300 a Month ($2,700 New Monthly Rent – $2000 Original Rent – $400 Financing Cost)
These Are Just Some Basic Examples of How Remodeling Can Be Profitable!
The scenarios provided above are just some basic examples of how remodeling your home can be profitable.
There are many other ways of making profit with remodel. Another great example would be a garage conversion. Converting a garage into an accessory dwelling unit can be very profitable for the same reasons stated above.
Are you serious about making profit by upgrading your property? Experienced professionals near you can help you create a profitable situation for yourself. They can do this by providing you with detailed information and suggestions on what you can do to reduce costs and increase value.
Are you looking for some of the best home remodeling Los Angeles has to offer? If so, our team of master craftsmen can help you make profit by upgrading your house. No need to search on Google or Yelp anymore! Get the highest quality work for the most affordable prices around.