What Makes a House Recession-Proof?

house on money

The real-estate bust has stripped all the smoke and mirrors from the housing market. In the starkest way possible, it is revealing which homes hold value in a recession, and why.

Certain upgrades can help recession-proof your house, but your home’s price resilience mostly depends on choices you made when you purchased. Since most homeowners buy and sell several times in their lives, you’re likely to have a chance to use these bulletproof principles the next time you buy.

Location, location, location

You’ve heard it before because it’s true: Location matters. It matters most, in fact, when it comes to holding value under pressure. Why? Because houses are replaceable, but land is not. If you’ve got a spot everyone wants, your place will sell faster and for a better price than a similar house elsewhere.

More than a view
Location means more than just views and water frontage. Other elements include:

Neighborhood. In some cities — San Francisco is one — the durability of home values varies from block to block, says San Franciscan Dick Lepre, whose blog, The Economy, covers real estate schools and safety. These make or break values. Buyers favor homes near schools,  libraries, parks, playgrounds and revitalized or charming commercial areas with shopping and coffee shops and theaters. An easy walk to light-rail terminals and bus lines is a plus. In communities full of retirees, proximity to hospitals and doctors’ offices is valued.

One caution: Watch out for noise. It’s good to be close to an elementary school but not next door, and it’s good to be near a main street with bus service but not directly on it.

Infrastructure. Although the fringes of hot cities are popular locations when prices are rising, interest falls off quickly in a downturn. City sewer and water service help hold up prices compared with an identical home on a septic system and well water. Cities with fatter tax bases may boast quicker fire department response times, better-maintained streets and stronger schools, all of which sustain demand.

Principles of durability

Location is just one piece, albeit a big one, of recession-proofing. When buying, these principles matter, too:

The “progression” principle. This rule of thumb says better homes bring up the value of a not-so-great house nearby. (And lesser homes subtract from nearby property values.) The lesson: Don’t buy the best house on the block.  George Baker, an expert in residential and commercial appraisals with Vestor Realty Consultants in Wilmette, Ill., knew this when he purchased his 2,400-square-foot home surrounded by 5,000-square-foot palaces. “Its value is enhanced by the fact that it’s on the block with better, larger properties,” says Baker, who is also a real-estate broker.

Single-family homes rule. Condominiums lose more value in a down market, and they lose it faster than single-family homes, says Terry Bernhardt, a Portland, Ore., home appraiser. In part that’s because builders tend to throw up too many condos when a market is hot. Also, it’s because more buyers want single-family homes than condos.

Remodel to support value

When you’re thinking of investing in upgrades, you can build in more enduring value by following these rules of thumb:

Broad appeal. In a shrinking universe of buyers, homes with the broadest appeal hold their value best. The homes most in demand are three-bedroom, two-car-garage houses with at least two bathrooms. Keep this in mind when you’re thinking of remodeling. When comparing the wisdom of adding a new, high-end kitchen, for example, versus a bedroom addition to your two-bedroom home, the addition is probably your best bet for durable value.

Attractive bathrooms and kitchen. These rooms, with all their costly plumbing, wiring and cabinets, have the highest value per square foot of any in the house. Investing in their upkeep props up a home’s price, says Portland appraiser Bernhardt. Extravagance isn’t helpful. Buyers are simply looking for well-appointed, updated rooms with good layouts and appliances.

Upgrades for energy efficiency. Improvements to a home’s energy efficiency promise a lower cost of upkeep, so buyers pay attention. Good investments include highly efficient windows, beefed-up insulation, new siding and appliances.
On the other hand, highly personal investments such as lavish kitchen remodels, swimming pools, game rooms and media centers may even detract from a home’s price, at least in Portland, Bernhardt says. That’s because few buyers may share your tastes. A new owner may see your swimming pool as a liability or a nuisance that must be torn out at great expense.

Source: Marilyn Lewis (MSN Money)


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