FUTURE PAYBACK ON YOUR RENOVATION INVESTMENT
When you are renovating your home with an eye to possibly selling it down the road, it is a good idea to spend time researching the impact of the type of work you plan to focus on and its resulting contribution to the value of your home.
Several years ago, I wrote an article on payback expectations for various renovations homeowners could undertake. I felt a revisit of that subject and update for 2024 would be useful given the high cost of building in recent years and the fact that more people are ‘staying put’ and renovating their current homes to enjoy and add value. A good portion of the content was based on information from the Appraisal Institute of Canada as well as my own conclusions on where it is best to focus for property care and improvement.
According to the Appraisal Institute of Canada, kitchen and bathroom renovations continue to top the list, as they have for years, as providing the highest return on investment and homeowners can expect to recoup as much as 75% to 100% of that investment on a future resale. Keep in mind that it is always advisable to renovate or update with quality materials and workmanship that are consistent with the home and the area.
Among lower-priced improvements with lasting impact, a fresh coat of up to date exterior and interior color paint throughout may return up to 100% of the cost. Color choice is critical as trends have changed dramatically in recent decades. Whenever we have clients who have agreed with our recommendation to repaint in an up-to-date color palate, they have been amazed and pleased with the result and the marketplace has responded favorably.
Another low-priced improvement is for you to declutter. Remove all excess items to showcase the features of your home. A good Home Stylist/Stager can give good recommendations in this regard. Our team provides one as part of our overall package of services to our clients.
At the other end of the spectrum, if you are thinking of installing a swimming pool, a whirlpool tub or maybe skylights, be aware these may provide only a modest return on your investment, if any. In fact, a pool can limit the marketability of your home in some geographic areas, as there are many buyers who regard it as a liability largely due to its upkeep time and costs.
For many common improvements, such as a basement renovation, rec room addition, flooring upgrade and window replacement, homeowners can expect a return in the range of 50% to 75%. This would also apply to updating décor items such as lighting and plumbing fixtures, countertops, replacing worn flooring (vinyl or carpet) or refinishing hardwood floors.
For some exterior work, e.g., landscaping, fencing, and paving, the return is less, from 25% to 50%, likely because they are not actually part of the home structure where the focus usually lies in setting home value. This has changed in recent years, however, as many exterior improvements add beautiful outdoor “rooms” which do much to enhance a property’s value.
There are also those renovations that are essential to maintain the worth of your property. They may not give that wow factor that takes your home to the next level, but if left unattended will in fact decrease your property’s value. They include replacing roofing, updating the heating/cooling system, replacing windows and doors, and updating electrical (panel, wiring, sockets, fixtures). Just as essential is to have structural defects repaired as they get near the end of their life expectancy.
Several other factors determine the value and return on renovation investment for a particular home, notably the location, the neighborhood and the quality of the work and materials used. If you are planning to spend a good deal of money renovating in 2024 or beyond you may want to hire an appraiser to identify the current value of your home and its projected value after renovation.
When return on investment is a consideration, a professional home renovator or designer can help you develop a plan that allows you to achieve your renovation goals without over- investing. An experienced renovator can suggest a range of designs, alternative approaches, less expensive materials, and so on, to keep your project within a comfortable price range and on trend. You end up getting the best of both worlds – a great place to live, and a reasonable expectation of recouping some or most of your investment when you sell.
Calling on an experienced real estate professional can also provide you with a market-driven perspective on the best areas to focus on to ensure maximum return. We are out in the marketplace every day and are seeing firsthand where certain renovations have increased property market value and alternatively, we also see how the lack of upgrading affects property values negatively.
In general, it is always prudent to keep updating certain aspects of your home to enjoy while you live there, but also with an eye to the fact that likely one day you may decide to sell.
