Maintaining Home Value

By Ginny Frizzi

April 1, 2011 5 min read

Purchasing a house is the largest investment most Americans make in their lifetime. With it come concerns and questions about how to maintain the value of the home.

Interestingly, part of the answer can be found before a house is actually purchased. It is well-known advice to buy the worst house in the best neighborhood. But what exactly is meant by the "worst" house?

For most people, the term "worst house" conjures up images of a ramshackle structure that will require expensive repairs. To real estate experts, however, it can mean other things, including the cheapest or the smallest.

"The smallest house in a neighborhood probably can be added on to without changes in zoning or setbacks (the distances from adjacent structures) and can be enlarged to be more in step with the demand. That often means a greater return on investment," says real estate authority, columnist, radio host and author Greg Rand.

The worst home in the neighborhood also could be the one that has not been kept up or needs a lot of renovation, according to Jennifer A. Chiongbian, a senior vice president and an associate broker at Charles Rutenberg Realty. "It can be as obvious as black and white; some of the features of the house don't live up to those of the other houses in the neighborhood," she says.

"The ugly duckling is what most professional investors look for," Rand says.

Chiongbian points out that the term "worst house" is relative when it comes to real estate. "You want a neighborhood where property values are stable," she says.

Good schools often provide such stability to nearby neighborhoods. Even if you do not have children, you should consider schools. When you go to sell, prospective buyers who have children (or who plan to have them) will want to know how good the schools are.

Linkages -- proximity to public transportation and services -- are another consideration when looking for a house that will retain its value.

"More jobs equal more people equal more demand. It also means more demand for your property when you want to sell. When you find a market like that, digging in to learn the nature of the workforce is important," Rand says.

"Will you be near stuff you need?" asks Chiongbian. Most people want to be comfortably close to churches, shops and supermarkets, she says.

Proximity to these things is especially important for homes in new developments or subdivisions. But when determining how well such a home will retain its value in the future, what else should prospective buyers consider?

According to Rand, prospective homeowners and investors should be wary of half-finished subdivisions and buildings, especially in today's dismal economic climate. "I speak to many people who bought in a new development because they were attracted to the lifestyle amenities, such as a club, pool, tennis, golf and high-rise living," he says. "But if the project stalls and the rest of the units are not built or are put on hold, those amenities may never materialize. Or worse, the amenities are built and the existing owners/members wind up carrying the cost of all the amenities on their backs."

Rand, whose latest book, "Crash Boom!: Make a Fortune in Today's Volatile Real Estate Market," was published in March, continues: "As much as being first in can be attractive, be careful. What does the contract say about your responsibilities if they don't complete the job? I would insist on an opt-out clause regarding the amenities."

Once you purchase your house, it is important to avoid overbuilding or over-improvement, which can actually decrease a house's resale value. "Customized details may not add value," Chiongbian says. "For example, Donald Trump may have gold bathroom fixtures. How many people would want or need them? They wouldn't be of use to most people. I advise clients with weird custom touches in the house to get rid of them and return things to the way they originally were."

The same goes for additions. "Say the house has three bedrooms and two bathrooms. You might want to add one bath, but not five. There comes a time when enough is enough in a neighborhood," Chiongbian says.

Rand concurs and offers his thoughts: "You never want to have the best house in a neighborhood. The market for that house is very small. Most people who do this are in love with their neighbors, so they overbuild. The problem is that the next buyers don't love the neighbors yet and can't see being at the top of the food chain."

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