When it comes to sinking money into a home, the first thing you’ll hear people start talking about is “adding value to the home.” But what kind of value are we talking about?
I’ve seen situations in which a customer was faced with spending between $50,000 and $80,000 to do land work before the house could even be built. None of that money would “add value” in the sense that you hear on TV all the time – resale value.
In this case we have to think of value differently.
We have to think of the value of the place to the customer. No matter what anybody says, this customer loves the land and the neighborhood. He sees it as a place to build his family’s “forever home,” and the value of that home to him trumps all other types of value here. And if it takes $70,000 to do that, so be it.
The fact that the customer sees it as a “forever home,” though, is important in seeing value in another light.
Let’s say that you’re planning on living in a home for 3-5 years. A house doesn’t appreciate enough in that short of a time period. When you sell, you aren’t really hoping to make money. You’re just hoping to get back some of the transactional expenses that you put into the home in the first place. Usually you aren’t going to come out ahead.
Now let’s look at that customer of ours that was faced with spending between $50,000 and $80,000 for land work. Twenty years will go by and that customer will have absorbed the cost of that land prep. Regardless of that, he’s not concerned with how much he’s going to get out of the home as far as resale value goes.
When you’re searching for a house or you’re thinking about buying and building on land, you’ve got to know what the value of the home is to you. If this is the place that you’re going to raise your family in a “forever home,” that’s the home’s real value, not how much you’ll get out of it when you sell.