Monday, 8 July 2013

Renovations that give the best return on investment

Are you thinking about listing your home and want to do some renovations to make your home more appealing to purchasers?  Even if you are not looking at selling in the short term it is valuable to consider your home as an investment and therefore return on investment (ROI) is a worthwhile consideration since cash is, in most cases, a limiting factor.  ROI is calculated as return (increase in the value of your asset) divided by investment.  An ROI greater than 100% results when the value increase is greater than the cost of the project.

Often a renovation is undertaken solely due to the desires of the homeowner, while the resale market may not value it highly.  If you are looking to enjoy your home for some while, resale value may not be a deciding factor.  But, the accountant in me would still encourage you to acknowledge ROI. 

ROI can vary based on your specific home and neighbourhood, as well as decisions made through the renovation process (upgrades, for instance).  It will also vary depending on what the potential purchasers value, and the market conditions at the particular time you go to sell your home.  If you are looking at selling in the near future, a low ROI project may still be something to consider, especially in a highly competitive market.  Renovations can also set your property apart from other properties on the market competing for the same pool of purchasers.  Still, though there are projects that tend to provide greater return and projects that provide less value to the typical home.

Paint, paint and more paint!  The best bang for a limited budget is undoubtedly paint.  In the real estate profession, Peter would encourage any client looking at a potential home to look past the color of the walls.  However, even if buyers are fully aware that paint is the easiest thing to change, its still part of the first impression that they walk away with.  Neutrals will appeal to the greatest majority of viewers, and damaged walls should be repaired.  Given the low material cost and relative ease of completion, a motivated homeowner can realistically undertake small drywall repairs and painting, and can realistically expect a ROI of 100% or even more on this project.

Bathroom and kitchen renovations may require a hefty budget, but these rooms can literally sell the house by putting your home in a different class and allowing you to compete with brand new construction.  Since the magnitude of this type of project is beyond the scope of the average homeowner, a licenced contractor may be required.  If the costs are well managed on such projects and upgrades kept under control, an ROI in the neighbourhood of 100%  which recovers the investment cost is possible.

Smaller projects may be more within the budget.  Updating the flooring, while typically only returning an ROI of 50 to 75%, according to the Appraisal Institute of Canada, can entirely change the look of a room.

Continuity is important and if there is a glaring issue in your home, buyers (or the home inspectors) will notice this and can result in a lost sale.

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