How to spot a home with potential

Assemble a team
Before making a move, get input from qualified professionals. Most remodelers will visit a home you're considering for free, pointing out obvious problems and offering a "guess-timate" of the cost of achieving the changes that you envision, Gray says. It's too soon to involve a designer or architect at this stage. (For that, read "How to hire a good home contractor.") Find remodelers using the National Association of Home Builders' directory of professional remodelers and check the NAHB advice on hiring a pro.

A trusted real-estate agent who knows what sells well in your market can also help. "Work with them on running the comps, looking at the neighborhood and understanding what you could do with a particular home to increase its economic value and value as a place to live," Fritschen says.

Don't get your heart set on a home until a home inspector has given it a thorough examination. If you make an offer on a house, make the sale contingent on the inspection, which means that you have the right to back out or negotiate further if the inspection turns up problems. The seller usually pays for the inspection, which runs around $300, depending on the locale. If possible, go along on the inspection, to see the house through the inspector's eyes.

Signs of potential
To find the homes with great potential, you must screen for qualities that make a worthy investment and for problems that could suck a hole in your savings.

For a worthy investment, look for:

A great location. Location was the first thing each expert mentioned. Get into a great neighborhood at a discount by buying a small home that you can expand later. "Look for a neighborhood where (other) houses have been upgraded," advises Fritschen, who publishes advice, articles and calculators for remodeling. If you plan to add on, expand the home's size only to the neighborhood's average or slightly above. Rule of thumb: You get a better return on your investment from a smaller house in a great neighborhood than from a fancy house in a so-so neighborhood. Finding the right neighborhood may take detective work: Knock on doors and ask neighbors about turnover -- low turnover is good -- and whether they think the neighborhood is getting better or worse. Don't just visit in daylight. To get the full picture, Gray advises returning repeatedly, in the evenings, at night and on weekends when residents are home.

Relative youth. Resist the charms of historical homes unless you've got expertise or deep pockets. Find a home no older than 50 years, Fritschen says. "If it's 100 years old, there are so many fundamental problems with piping, electrical, heating and foundation -- it just goes on and on." Simple ranch homes and newer tract homes are your safest bets, Wysocki says. With the housing crash dumping lots of orphaned new homes on the market, it's a great moment to score a place with potential, as long as it only needs minor TLC. (Even with newer homes, do your research: Read "How long can a half-built house sit?" and "Buying a foreclosure? Plot your strategy.")

Simple upgrades. Your mission is to find a home that's ignored and underpriced because of its shaggy looks, yet really requires only a "makeover" -- simple, inexpensive cosmetic improvements like new paint, flooring and light fixtures. That means avoiding the impulse to buy a home that needs upgrades that require moving or replacing walls, cabinets, countertops, appliances, plumbing or electrical systems. "HGTV says that you can do a room makeover for $750, but that doesn't really happen in the real world," Gray says. The best fixers have kitchens and master baths that are spiffed up easily and cheaply. Otherwise, you'll find yourself easily spending $5,000 on granite countertops alone. In Indianapolis, Gray says, the average bathroom facelift (new flooring, mirrors, paint, countertops and vanity, hardware, light fixtures, sink and faucet runs $5,000 to $7,000. A full-scale remodel -- moving walls, plumbing, vanity and wiring, and replacing tub, sink, toilet, flooring, paint and counters and building a new tile or stone shower -- costs $40,000 to $55,000, depending on the  job and choice of materials. (Play around with Fritschen's Remodel Estimates tool or Contractors.com's Home Improvement Project Estimator to roughly calculate costs. Read "Remodeling in 2010? Additions are out, replacements are in.")

A floor plan you can live with: Find a home with a basic layout that makes you happy just as is. To contemporary buyers, that usually means an open floor plan, not a warren of small rooms. At the same time, watch out for too much openness, for bedrooms and bathrooms that lack privacy. Also, keep in mind that, in suburban areas, buyers expect a home to have a garage, so investing in a home without one could mean sacrificing resale value. 

Light. Picture how you respond to a light-filled home and you'll recognize what value natural light adds. Dark houses aren't always as easy to fix as you might think. If you find yourself thinking, "I could just plug a window in over there," stop. It's not expensive to add a new window, Wysocki says. But if a room seems to call out for a window where there is none, there may be a reason: zoning issues, structural problems or an ugly house next door.

Plenty of closets and storage. While it's true that you can always add on, it'll cost you, so look for plenty of convenient storage included. Fritschen estimates that adding a simple storage area (with a concrete floor, walls and a roof) runs $40 per square foot, on average. Prices vary depending on local costs, and contractors often charge a minimum to cover overhead, which means that a per-square-foot cost of a 400-square-foot garage may be less than that of a 50-square-foot shed.

Updated maintenance. Ask if the sellers kept service records on the furnace and mechanical equipment and look them over. Were appliances and home systems serviced annually? Try all doors, drawers, knobs, windows, faucets and appliances to ensure that everything works and that you'll understand any expenses you'll be taking on.

When to be wary
Impulse buys are fine for shoes and clothes, but a home is too expensive and trouble-prone to let your brain abandon you when you need it most. "The biggest problem for first-time homebuyers is that they're emotionally charged," Gray says. "They get invested and don't really investigate it far enough."

Here are signs to back away, no matter how deeply you are infatuated:

• Single bathrooms.  A solo bathroom can limit a home's resale value. And experts disagree on the wisdom of adding an additional bathroom later. "There's no way you should buy something with just one bathroom in a suburban area," Wysocki says, although he adds that it might be OK in urban neighborhoods popular with singles. Fritschen, however, views adding a bathroom to a one-bath home as "free money" because it can substantially boost the property's value. It all depends on potential resale value, on your skills, your money and on whether you're getting such a good deal that your finances allow for the extra expense.
  
  
• Galvanized steel plumbing or aluminum wiring. Galvanized steel pipes, used before copper plumbing came along, are vulnerable to sediment buildup, leaks and corrosion. Newer plumbing uses polyethylene (PEX) or polyvinyl chloride (PVC) pipes. Aluminum wiring, a potential fire hazard, is no longer used in home construction; copper wiring's the standard today. Either of these elderly materials signals the need, eventually, for expensive upgrades. "Each of those is a $10,000 bill," Fritschen says.
  
  
• Roof replacement. A home inspector (Read "4 tips for finding the best home inspector.") can tell you if a house needs a new roof. A new roof today can last up to 50 years, depending on the material, but you don't want to be the one to pay $20,000 to $40,000 for a new one. The investment won't increase the home's resale value or your pleasure. Unless a super deal makes the roof cost pencil out, find a house that has a roof with lots of life left.
  
  
• Siding or window replacement. New siding ($10,000 to $13,000 and up) and windows ($10,000 to $18,000 and up) are not only big expenses, need for them is a danger sign: They can indicate water damage hidden inside the walls, Wysocki says.
  
  
• Water stains. A good home inspector will point out signs of water damage. But you can keep your eye out, too. Inspect ceilings, walls and floors for stained, warped or uneven, peeling, discolored or damaged drywall or flooring. Why are these blemishes a big deal? Because they may point to mold or rot beneath the surface.
  
  
• Rot.Check all surfaces, including in the basement, for rotting wood. Gently poke trim and wood surrounding windows and gutters with a pencil tip to spot soft, spongy or crumbly wood. Not only is replacing trim an expensive headache, but visible rot may just be the tip of the iceberg.
  
  
• Foundation problems. Drainage and foundation repairs are thankless expenses that can run tens of thousands of dollars. To detect foundation trouble, tour the exterior, checking for cracks. If you can slide a quarter sideways into a crack, it's too big, Gray says. Try to visit after a rain to look for water accumulating around the foundation. (Read "Six signs your home could be a lemon" for more guidance.)

The New Rules for Remodeling

During the bubble, homeowners sought the biggest, splashiest home improvements to boost resale value. Now they're doing smaller projects that deliver a similar result for far less money.

POPULAR PROJECTS DURING THE BOOM*	THE NEW VERSION**	RESULT
Major home office remodel Cost: $27,000	Basic remodel, converting a bedroom by adding low-priced cabinets. Can cost as little as $2,000 plus rewiring and adding receptacles, according to Washington-area contractor David Merrick.	Provides a new, dedicated work area at a fraction of the price.
Bathroom addition Cost: $37,200	Typical 5' x 7' upgrade within existing home dimensions, including low-flow toilets, new fixtures, mirrored walls and new architectural lighting. Cost: $16,000	Mirrors, better lighting increase the feeling of space; low-flow toilets save money on water bills; bath fixtures including body sprays give "spa" feel to the home without the expense of whirlpool baths.
Major kitchen remodel/expansion Cost: $55,500	Remodel within existing dimensions, including removal of a wall for improved flow between kitchen and dining room, new energy-efficient appliances and water-saving fixtures, new cabinets and flooring, and bigger windows. Cost: $21,000	Less wall space and bigger windows give a small home the appearance of more space and light; energy-efficient appliances save money on heat and hot water.
Family room addition Cost : $79,000	Screened-in porch. Starts at a few thousand dollars, assuming there is a roof and foundation in place; $15,000 to $20,000 to convert a small deck; or more than $50,000 to build new.	Screened-in porch increases usable space and brings outdoors indoors; accentuates landscaping and gardens.
Master suite addition Cost: $98,863	Attic bedroom. Convert unfinished space into 15' x 15' bedroom and a 5' x 7' bathroom with shower. Cost: $49,346.	Provides more living space for a returning family member.

Interested in how your area's house appreciation compares to other area of the US?  Click here to find out more through the Office of Federal Housing Enterprise Oversight:
http://www.ofheo.gov/

Are you considering an out-of-area move?  Visit the link below to get all the information you'll need including an area report, cost-of-living comparison, find a mover and much more:
http://www.homefair.com/homefair/servlet/ActionServlet?pid=27&cid=homefair

Would you like more information about either Larimer or Weld County?  The links below will take you to the demographic profiles for each area:
http://www.co.larimer.co.us/compass/        

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