Lately, I've been writing quite a lot about our renovation journey in the condo. When we decided to stop renovating, it was entirely motivated by the return on investment that I projected for us upon resale: We knew we wouldn't make our money back, so we accepted that we would not be able to complete the look of our current home. This was our decision and many people would have decided to go ahead with their improvements anyway. In many cases, it depends on how long you plan to live in your home and how your quality of life might be impacted by choosing not to renovate.
We are confidant that we made the right decision in our case, but today I'm going to indulge those of you who like to think of your home as an investment, and discuss some renovations that DO and DO NOT offer a good ROI (return on investment). Keep in mind that the specific return will depend on your market, area and type of house. For example, a fully upgraded and modern kitchen with all the "bells and whistles" may not drastically improve the value of a home in a lower income area. There are also some interesting examples of renovations that are surprisingly impacted by the area. More about this in a minute.
Let's begin with the improvements that DON'T pay: Zillow just released a list of The Top 5 Home "Upgrades" You Should Avoid. Keep in mind, that "avoid" is a strong word but you should at least consider whether the cost of a renovation is worthwhile to you even if you will not make the money back on resale.
- Built-In Aquariums (not surprisingly) top their list. An aquarium is expensive and difficult to maintain and built-ins to most buyers would just be something they would need to pay to remove. You are unlikely to find another "a-fish-onado" (couldn't resist) to purchase your home. I also always wonder what people with these huge aquariums do with the fish when they move? Do they consider the fish to be pets or part of a built-in fixture?
- Built-In Electronics are also up there. This obviously includes Home Theatres although this may depend largely on the size of the home. While most buyers would likely consider them a waste of space in a 3 bedroom bungalow, they may be an added perk in a mansion. "Man Caves" are not mentioned in the article but they are becoming increasingly popular in our market. It will be interesting to see what happens in a few years when we start to see them in homes that are listed.
- Eliminating a 3rd or 4th Bedroom is a no-no. I would very rarely suggest that a client consider combining two rooms since it just doesn't look good on resale. Realtors often form their comparative market analysis (price estimate) based on homes in the neighbourhood with similar lot size, and number of rooms. By eliminating a room, you are automatically placing your home in a lower category. You probably don't need that walk-in closet THAT badly.
- Over-Renovating a Basement is also not likely to get you a huge pay-back on closing. After all, it's only a basement and your buyers may also have had specific plans for that space. If you're not using it for your family or for income, it is often easier to just let your buyers renovate it in their own style. Remember that this applies to OVER-renovating, so you're probably fine finishing your basement as long as you're dividing it into very specific rooms. One possible exception is a basement apartment in certain markets... like a university town where many owners are looking at rental potential.
- Major Upgrades to Outdoor Living Space in Cold Climates is actually number five on their list. This makes huge sense to me as a Canadian. I see beautiful outdoor kitchens all the time, but I would only enjoy one in my own home from May to September each year.
Not mentioned in the article but also worth considering are pools (especially in cold climates) since they are expensive to maintain and some parents worry about safety concerns while their children are young. It's always best to ask your Realtor for specific information about your market.
So which renovations consistently pay off in most markets? Well according to the experts, the best renovations seem to be focused on the:
- Kitchen (Not surprising. Buyers look at kitchens.)
- Bathrooms (Especially adding one on a main floor.)
- Siding (To boost curb appeal.)
- Windows (To improve energy efficiency. Still, I'm not sure that I agree. See below.)
- Paint, Paint, PAINT! This one is my own but experience tells me that it's one of the BEST things you can do before listing. A "Fresh Coat of Paint" in a light, neutral colour can open a space and make it seem brighter and larger.
- Minor Kitchen Remodel (Cost: $3,000. Expected Return: 75%-100%)
- Major Kitchen Remodel (Cost: $25,000. Expected Return: 75%-100%)
- Bathroom Remodel (Cost: $8,500. Expected Return: 75%-100%)
- Basement Remodel (Cost: $7,000. Expected Return: 50%-75%)
- Fireplace Addition (Cost: $3,000. Expected Return: 50%-75%)
- Deck Addition (Cost: $6,000. Expected Return: 50%-75%)
- Heating System Replacement (Cost: $4,000. Expected Return: 50%-80%)
- Window Replacement (Cost: $6,000. Expected Return: 50%-75%)
- Major Landscaping (Cost: $10,000. Expected Return: 25%-50%)