How Much Does Pretty Matter?

Buyers zip through online websites looking for the home of their dreams. They discard homes based on the exterior photo and move on to a dozen or sometimes a hundred different properties. At open houses, probably fifty percent of those who thought they were interested in the home, simply drive right by it, rejecting the outside appearance of the home. So, yes, pretty does matter whether it’s for a single family home and for a small investor looking to make his first duplex or four-plex investment.

Anchorage’s housing stock is old, really old. Not only does it suffer from economic and cosmetic obsolescence but it doesn’t always look that good, either. In the world of botox and LA inspired cosmetic surgeries, ‘pretty’ adds value but giving a home a new facelift can be expensive and return on value is usually 50% or less. What ‘pretty’ does provide, however, is a faster marketing time or a slightly higher rental rate.

However, probably nowhere in our housing stock is a ‘facelift’ more important than in our local rental market, the vast majority of which was built in the 1970’s and 1980’s. With a vacancy factor of 3.9%, a creep up from 3.5% in 2015, the vacancy rate is still below the national average but the average Anchorage rental rate for an apartment has only increased by $5, signaling a stall in rates while at the same time the existing housing stock needs that facelift.

While on the other hand, builders and investors are hesitant to build and buy brand new rental units. In order to compensate for the higher cost of construction versus existing square footage values, units have to be built smaller but also ‘pretty.’ Apartments built in the 1980’s usually had two bedrooms and one bath in about 1,000 to 1,200 square feet. Today, there is considerable demand for three bedrooms and two baths packed into 1,000 square feet. You can count on the ‘micro’ rental unit coming to Anchorage in the not too distant future, although it may be larger than the 200 square foot units recently approved by the New York City zoning commission.

Small has value. Less square footage to heat. Better and more efficient mechanical systems. Better insulation. Less reserves for maintenance and repairs the first five years. As our market readjusts itself from the last few years of appreciation, more and more buyers will turn to owner-occupied duplexes and four-plexes. They will like the 27.5 years of depreciation and the pro-rata write off for insurance, advertising, office supplies, landscaping and utilities. But, like any other buyer, they will want to buy ‘pretty’.