The other day I was talking on the phone to a client of mine that I helped to buy a home last summer. Since moving in she’s done some minor work to the home but she wanted to know if a basement home renovation project was financially worth it.
Smart! Asking a realtor about the potential ROI of a home renovation is always a smart move. You can read general statistics on the internet and get plenty of advice but keep in mind that every situation is different, every home is different, every neighbourhood is different and having someone who knows your situation can really help.
While well worth it, home renovations can be very expensive so it’s important that before you pull out your check book, you consider your options. If you were to ask me if it’s worth doing a particular renovation here are the questions I would ask you:
Why?
What is the reason for the renovation? Are you doing it to make life easier, are you expecting a new child, are your parents moving in with you, or are you moving soon and want to increase your sale price? There are plenty of great reasons to renovate but clearly identifying the main reason will help you decide the best course of action.
How long do you plan on living in your current home?
How long you plan on living in the home is probably the most important factor to consider before renovating. The truth of the matter is that while some renovations are a better investment than others, most of them will not increase the value of your home as much as you paid. Be honest with yourself, if there is an off chance that you will be moving in the next few years there’s a good chance you won’t recuperate all of the money you spent.
What did you pay for the home? What is the home’s current market value?
In the case of my client, I was able to negotiate a really good deal on the home and after checking the most recent sales in the area she realized that she had already built up a good amount of equity.
This is especially important for younger home owners and first time buyers. Equity is the name of the game in real estate and if you paid top dollar for a house only one year ago and then are looking to completely renovate the kitchen, you may be over investing in your home. The same is true for more affordable properties in general, we all love quartz counter tops, custom cabinets and miele appliances but if you are thinking return on investment and your home is in a more affordable price bracket, chances are that a future buyer will not pay you extra if the cost of your reno pushes your sale price above market value. Make sure the numbers work before deciding.
Can You Afford it?
It’s so easy today to spend a small fortune on home improvement. Lines of credit, zero percent financing and a host of other incentives make it tempting to jump in and get started. Just remember that if you are borrowing to renovate, do your numbers! I wouldn’t borrow money for anything that will not produce a payoff.
Is it Cheaper to Move than Renovate?
I know moving can be expensive, but so can renovation. You can easily spend 40 to 70 thousand dollars to get your dream kitchen. Sometimes it’s easier to find a new place that has everything done for you instead of shelling out a large sum of cold hard cash.
Will it make you happy?
If you’ve thought about all of my suggestions and everything looks good, then go for it! On the other hand, maybe the numbers to don’t quite work out but you still want to go ahead. That’s great, the only thing that matters at that point is whether doing the renovation will make you happy? At the end of the day happiness is worth a lot and not everything has to be determined by a spread sheet!
ROI for Home Renovation Quick Facts
- Minor Kitchen remodel: 75.4%
- Bathroom remodel: 58%
- Steel Entry Door Replacement: 85%
- Deck addition: 73%
See the full Remodeling Cost Value Report 2013
Thoughts or comments on home renovation? I’d love to hear them. If there’s anything I can do to assist feel free to contact me, I’ll be happy to help!
