Gut Reno Estimates

I checked my spreadsheet. Almost exactly 400/sqft for renovation only, including architect, permit, gut Reno demoing all interior partitions, New floors, New windows, 58K for custom kitchen cabinets plus install, all appliances except fridge and dishwasher, light fixtures, through the wall AC, closets, a few pieces of furnitures around 10K, etc.

Carry cost? 14 months so 100K(I'm thinking in terms of extra rent we paid). Hassle? I was seriously stressed all the time and regretted the decision, but now that I survived it I came out stronger. We thoroughly enjoy our new home.

I think a lot of people in NYC have justified overspending on renovations based on increased value which they attribute to the renovation, but was actually just the market. In the same way that many developers have been making their money on deal fees rather than any actual added value from their development (and probably simply could have held their development sites for the same amount of time and then resold them and then pocketed the same amount of gain at the end of the day).
If the market does what I think it's going to do (and even if I'm wrong about the degree but simply right about the direction) it's going to be much harder to justify doing these renovations in the bottom 2/3 of the market.

30, I think depends on the original condition of the property. If it is in estate condition, and the renovation is not too personalized, one would easily get 100 percent or more back excluding hassle. Also depends on what discount you get for estate condition vs nice brand new renovation. I think the current discount is well north of $400 per square foot unless you are buying a unique property in an area like village where the supply is very limited. I think the discount should be $500 per sq ft in the current market (it is indeed the case for some properties) to cover for carry (renting equivalent property while your renovate) and some reasonable amount for personal labor and stress. I say 2-3 months of your salary. If you make $500k, hassle is $100k to you. If you make $1mm and have a spouse who does not work, still worth something as you will be involved in discussions and decisions making and distraction may earn you lower bonus.

My point is that putting in this kind of money in only works at certain price levels. If you are in a market where unrenovated apartments sell for $400/SF, what do you think apartments with $500/SF renovations sell for? (Hint: it's not $900/SF).

For example, what does this apartment sell for after a $400/SF renovation:
https://streeteasy.com/building/7825-4-avenue-brooklyn/e9?featured=1

Or this one:
https://streeteasy.com/building/60-cooper-street-new_york/6f

Yea, 300 that is the key - finding opportunities where $500 psf does not over-improve the unit. I currently finishing a moderate reno of a one-bedroom and concentrating on improvements that I think add value to the majority of buyers such as a new bathroom, expanded kitchen, washer-dryer and a few new closets. I hoped that I would easily recover the costs when I sell but the recent downturn may now cost me half of the profit I expected. Still, I expect to make some money.

But I now think that most gut renovations only make sense for the long-term holder. Unless of course you can buy at a significant, perhaps below market, price which is tough to find, at least for me.

I fear lots of buyers now are foolhardy in their renovation strategies.

Yea, 300 that is the key - finding opportunities where $500 psf does not over-improve the unit. I currently finishing a moderate reno of a one-bedroom and concentrating on improvements that I think add value to the majority of buyers such as a new bathroom, expanded kitchen, washer-dryer and a few new closets. I hoped that I would easily recover the costs when I sell but the recent downturn may now cost me half of the profit I expected. Still, I expect to make some money.

But I now think that most gut renovations only make sense for the long-term holder. Unless of course you can buy at a significant, perhaps below market, price which is tough to find, at least for me.

I fear lots of buyers now are foolhardy in their renovation strategies.

Sorry for the double post which was meant for 30, not 300.

Completely agree 30. I would get very basic appliances (no built-in refrigerator etc) and flooring for this type, reglaze bathtub, replace toilet, sink, repaint by super etc. You can manage that clean up in under $100 per sq ft.

I am being Manhattan centric (ex upper Manhattan) where there is not much nicely finished space under $1100 per sq ft.

300, of say $500 psf is the right number, what sales Proce finished does this apply to? How would you adjust this figure for units in the $1,000 psf to $1,500 finished price range ?

$1000 per sq ft finished do not get a high-end gut reno or a gut reno at all (perhaps basic clean-up) at Manhattan prices. There is not much nicely finished in Manhattan at that price. $1500 per sq ft nicely finished trades at $1000/$1100 per sq ft in estate condition. $500 per sq ft covers basic high-end reno (sub zero, top end ceasar stone or nice marble countertops, wide plank floors, new acs, new doors, lighting, marble bathroom with high quality fittings, new electrical, moving walls, nice custom cabinets possibly Italian or German rather than big box store cabinets; some customization of closets, no new windows, calacatta or statuary marble countertop or baths or significant millwork etc) with carry and some allowance for trouble/time spent. You can basically make it as good as a low/mid end new development trading around $2k per sq ft on the stuff you can control.

So you can still buy at say $1,000 psf, spend $500 psf on renovations and sell for $2,000? That's about a33% return, yes?

What types of deals earn 100% returns in your opinion?

And how much of that 100% return do you credit to general market appreciation?

My point is when the market goes down (if it goes down) the percentage of the market where it makes ecenomic sense to do these renovations decreases because the price per SF in renovation cost is fixed where the sales price is not. And at lower prices you can't get the same $/SF discount because people are perfectly willing to live without top end renovations.

I agree and wonder where the tipping point may be. Of course, renovation costs will go down is business slows down but that takes time and doesn’t renovation business do better when owners take their homes off the market?

"So you can still buy at say $1,000 psf, spend $500 psf on renovations and sell for $2,000? That's about a33% return, yes?"

I don't think such deals exist, though. Let's take as an example a property we were talking about not too long ago:
https://streeteasy.com/sale/1349615
Let's say you could get it for $1,000/SF (which you couldn't/can't). You do a $500/SF Reno (including all costs). You sell it for $1600/sf (which I think the general consensus was fair-to-optimistic). And you lose money doing so.

"You can basically make it as good as a low/mid end new development trading around $2k per sq ft on the stuff you can control."
I am not suggesting the sale price will be $2000 per sq ft; this is just to give a sense of the level of the finishes. The sale price will be close to $1500 per sq ft (for purchase price $1000 per sq ft after nice high end reno) which is a discount to new development as you can not change the building, ceiling height, window size and infrastructure. $500 per sq ft includes $75 per sq ft sweat equity for the renovator. This is the premium over cost for a non-professional doing the reno assuming they are doing the reno to live in it. If they sell right away it will be wiped out in transaction costs.

I meant this thread just as a survey to see what people are actually spending in Manhattan rather than whether it is justified or a bull-bear debate.

So you are saying that you perceive the mid-market in Manhattan is fairly pricing for condition right now based on your experience as to what renovation costs are and you would like people to either agree with you or disprove your theory by posting examples?

Many buyers might spend $500 psf in renovations with little hope of earning a capital gain in 1-2 years. personally, I that that is the likely outcome. But that is quite a change from a few short years ago. Is there anyway to renovate and flip to earn a quick profit in today's market?

30,
1. I am merely trying to understand the relationship between the market discount of nicely renovated vs estate condition properties (Reno being the only difference) vs what people end up spending hard cost, plus carry plus trouble in Manhattan. I suspect people are not fully accounting for trouble. Naturally, the discount varies with market conditions.
2. Also trying to understand how good is Bolster data or are they only working with people who are willing to pay a premium for their service? I am guessing they are charging a 10-15% premium for their service which reduces sweat equity/trouble for the owner.

I think those are going to be tough questions to asnwer with the market in transition but my gut feeling before even doing any actual research is that looking backwards for the last several years that the discount people have been receiving is not enough to cover all of those, but also they have been deluding themselves that it has because they use the value at the time the renovation is finished vs the contract price plus costs (and often don't even include all of them).
It's like when people tell you their commute is only half an hour when that's the length of the train ride from their station to Grand Central/Penn and they leave out both the time to get to the train station and from GC/Penn to their office. In our case you have to consider both the renovation costs and the appreciation you would have gotten anyway even if you hadn't renovated.
My guess is also the Bolster data is skewed towards to higher end because if someone were only doing a budget kitchen and bath and little else I don't see them spending the markup (but again that is simply gut feeling backed up by zero hard data).

I think you also have to think about the purpose of the renovation. A person is not going to spend 500 sq ft for a renovation just for resale, they might take resale into account but they are spending 500 per sq ft because they want to live in a beautiful apt for 5-10 years. People that are buying for an investment are spending 200-250 sq ft and less.

Thank you Primer. In your experience what do people end of spending in Manhattan on a guy Reno when they want to live there before carry and trouble (say $100-125 per sq ft allowance for carry and trouble)?

I can't really say about the carry and trouble but it really depends on many factors.

I have worked with a lot of first-time homeowners that want a beautiful apt but their budget is tight. After some value engineering, they usually get it done for about 250 sq ft but it does take some work in finding some less inexpensive solutions

We also have some clients that will spend 600-700sq ft which includes a lot more custom millwork, level 5 skim coating, home automation, etc.

Then you have some clients that spend $1,200 sq ft on a complete gut renovation where every finish is hi-end with a lot of custom work.

So, to answer your questions it really depends on where the owner is in life and what they want

Thank you. So, $250 per sq ft is minimum for gut Reno if the client is on a tight budget. Much in line with Bolster data. Guessing most people would not be less than $300 per square ft.

Perhaps we should codify what exactly we mean by "gut renovation" because I see so many Curbed postings and listings described as such but in my view clearly aren't.

For those of us who wish to spend no more than the amount of renovation dollars they can recoup when they resell, what is the range in $psf one should spend? When I say resale, I do not mean giving credit for general market appreciation. I suspect this $ amount is quite a bit lower today than just a few years ago.

30, As a minimum compete new baths with plumbing, kitchen, floors, moldings, doors, walls, lighting, electrical, closets, replace through wall units or put central ac, nice paint job without skim coating, Radiator covers, some custom millwork, some reconfiguration. Window change if they are not in good condition. What is your definition?

What percentage of people do gut renos vs redo the kitchen and baths, paint and maybe refinish the floor? In my experience the second is much more common.

Gut reno to me means reconfiguring the apartment by removing the interior walls. But I agree with ChasingWamus that few owners will go that far.

And it's likely owner would not need to remove interior walls unless they were combining 2 or more units. When doing that type of reno, prices can escalate fast.

In my opinion a gut renovation means you literally have to gut the apartment - removing ALL finish materials. Essentially everything which the shareholder/unit owner owns and leaving only the elements owned by the building.

A full gut renovation is demo everything including existing walls. I think that's the definition but if we demo 3 bathrooms, kitchen, flooring, all doors, all trims and skim coat all the walls we do call that a full gut demo.

Chasing Wamus,

Tough question to answer, a lot of people will only renovate their bathroom or kitchen and I would guess there are way more of those projects but there are a lot of both

To answer another question, generally, a full gut starts at $250 sq ft but of course you can do it for a lot cheaper. You can buy prefinished flooring for $3.00 sq ft or $2.00sq ft tile as well as hire a less qualified contractor to run the project. It could hurt alot along the way but could get done.

I would highly recommend Bolster for large projects. Had the opportunity to interview their CEO and their approach to renovations is very interesting and data-driven.

Listen to the full interview: https://reiyb.com/2017/12/005-fraser-patterson-of-bolster-constructing-a-full-stack-experience/

we bought a 1900 soft coop in estate condition and spent between $600-700/ft on a near-gut renovation 3.5 years ago. New windows, floors, electrical, kitchen bathrooms, some reconfiguration, CAC. All-in price over $2k a foot. We plan on living here for 10 years. But I would be surprised if we ever made a return on the place. And its pretty special, has been featured in magazines etc.

Nice. It seems a little on the high side. Guessing you used slab marble in the bathroom (Calacatta eqt), Dornbracht fixtures, and lot a custom millwork beyond kitchen, vanities and closets). Glad you enjoy it.

As I continue to research what is costing people to gut renovate, I am finding that landmark window replacement is a big factor and typically an add on to the $300-400 per sq ft number typically being thrown around for lower end of high end reno. I have seem estimates of $3k to $15k per window depending on the building. That can easily add another $50-75 per sq ft to the Reno cost bringing it closer to $450-500 per square foot plus carry plus trouble.

Also $15k per window is likely due to only a single approved supplier of the windows for a building. The supplier is making a killing due to monopoly.