Tuesday Nov 01st, 2016
There are many different reasons why you may want to renovate. It might due to a lifestyle change, like a new baby on the way – or it may be out of necessity, like a leaky basement. Or maybe you’re looking to sell. Whatever the reason, any renovation project is going to cost you money.
The fundamental question facing anyone who has ever embarked on a home renovation is: Will I get the money back when I sell my house? What a buyer may be willing to pay depends on many factors, including everything from the choice of building materials you use, to the value of the other homes in your neighborhood. The average renovation will usually pay for itself because it is essentially an investment in the value of your home – and therefore, when you sell, you will usually recoup that money in the form of a higher selling price. This is known as payback, or Return on Investment (ROI).
Types of Renovations
There are three types of renovations:
- Lifestyle renos Lifestyle renovations improve your home and your way of life. They might involve building a deck for outdoor entertaining, or converting a basement into an apartment for additional income.
- Retrofit renos Retrofit renovations focus on your home's shell or mechanical systems. This includes installing new windows, upgrading your insulation, or replacing your furnace with products that are Energy Star* qualified.
- Maintenance / Repair renos These types of renovations protect the investment you have made in your house and ensure that no further damage occurs. This includes re-shingling a roof, replacing eaves troughs, sealing the driveway, or caulking windows.
Before You Begin
When making any renovation decisions, it is important for you to balance your family's enjoyment of your home with your desire to make a wise investment decision. Before you begin, ask yourself these four, key questions about your project:
- Is it practical?
- Is it cost-efficient?
- Is it adaptable?
- Will it make your home healthier?
Ask yourself whether the proposed renovation is essential - or simply desirable. It's true that maintenance renovations are more of a necessity than a choice because they are simply a part of owning a home and protecting your investment. However, lifestyle renovations and some retrofit plans may not be doable or practical. As with any successful home renovation project, careful planning and clearly thought-out goals are key.
When you’re deciding what type of renovation to make and how much to spend, consider the payback on your investment. While some home improvements might improve your quality of life, they might not increase the value of your home. Any renovations you make should add as much value as possible to your home. By making your house more energy efficient, the money you save on water, heat and light may actually pay for the upgrades over time. However, if you are planning to move shortly thereafter, will the renovation be worth it? Will it pay for itself in the time you plan to stay there?
Here are the top six renovations with the greatest potential for Return On Investment (ROI):
|Kitchen renovation||75 – 100%|
|Bathroom renovation||75 – 100%|
|Exterior painting||50 – 100%|
|Interior painting||50 – 100%|
|Roof shingle replacement||50 – 80%|
|Furnace/heating system||50 – 80%|
Sprucing up the inside and outside with a fresh coat of paint is one of the best uses of your renovation dollars – not only because it leaves a good overall impression if you are looking to sell your home – but also comes with an average, potential payback of 73%. Experts recommend keeping paint colours neutral and in line with your neighbors.
Safety upgrades are another worthwhile consideration. If your renovation includes upgrading old wiring or adding a security system, your insurance company will likely decrease your premium. Note too, that a security system can also be a good selling feature.
When you’re renovating, consider the long term and how your needs are likely to change as time goes by. Your design should take flexibility and long-term usefulness into consideration. For example, your children may need a playroom now, but when they’re teens, they may want a place to entertain or do homework. By installing the required wiring now, you will save time and money later. This forethought may also add a selling feature to your home, should you decide to move.
It is also important to consider adaptability in terms of what future buyers might like, and how easy it would be for them to change or remove. Some upgrades may not appeal to everyone and therefore will not provide a good return on investment. This includes using strong colours, installing an in-ground pool or exterior hot tub, wine cellars, basement bars, dance floors, entertainment centers, or very high-quality fixtures.
It is becoming increasingly important to many buyers that a home be healthy, energy efficient and environmentally friendly. When renovating, consider the Five Healthy Housing Principles:
- Occupant Health – includes superior quality of indoor air, water and lighting to ensure the health of those who live in the home.
- Energy Efficiency – includes installing energy-efficient heating and ventilation systems and appliances, reducing the consumption of electricity and other fuels, and using renewable energy. It also takes into consideration the energy used in the manufacture of building materials and in house construction.
- Resource Efficiency - makes efficient use of building materials, considers the durability of building materials, and ensures construction waste is well-managed and responsible.
- Environmental Responsibility – involves thinking differently about how homes and communities contribute to the health of the planet. This includes using alternative water / wastewater systems, efficient site planning to reduce land requirements, resource-efficient landscaping, and broader community planning issues, such as transportation.
- Affordability – adhering to these five principles can help you save money and ensures a home design that is easily adapted to the changing needs of its present and future occupants.
The KISS Principle
When determining the scope of your renovations, it is important to stick to the KISS principle, which is “Keep It Simple, Stupid”. Renovations that improve a home’s appearance always get the best return on investment.
Just because a project is expensive doesn't mean it will yield a higher payback. It is usually minor improvements that yield major dividends. According to Remodeling magazine in their annual analysis of cost versus value, giving your kitchen a “facelift”, such as using a fresh coat of paint, refinishing surfaces and upgrading appliances, will yield a higher return than a full kitchen redesign.
The reason why simple improvements achieve the greatest return on investment is because they play on people's emotions, which sometimes makes them do things they wouldn't normally do… like buy a house. Although a new roof might be a more solid investment, it’s difficult for a buyer to get emotionally attached to it. Investing in something as simple as a $30 can of paint to freshen up a room, can potentially bring a return of investment of hundreds, sometimes thousands of dollars. This is because the change goes straight to the "feel good" area of people’s brains. Always consider emotional appeal when making any home improvement.
That said, adding a room or a garage is also a good idea, although this may be one of the more expensive home improvements you can make. The reason is simple: bigger homes command higher prices. Note however, that good design and execution are keys to ensuring you will make your money back.
Undertaking a major renovation can be stressful, what with having to deal with contractors, tradespeople, suppliers, and your government. Worrying about financing on top of it all can be avoided if you do some careful planning with your financial institution ahead of time.
Before you get started, there are some important steps you should take before you talk to contractors, or undertake some or all of the renovations on your own. These four steps will help you clarify your renovation goals and priorities:
- Write down all of the things that you want to change.
- Consider your current and future needs, so that renovations made today will accommodate your future lifestyle changes.
- Make a list of everything that must be included in the project, and also jot down the nice-to-haves that may be added if your budget allows.
- Do research and get as much information as you can, by going to home shows, housing seminars or workshops, picking up books or videos on home renovations, and talking to friends and neighbours who have renovated.
Remember: mistakes are easy and inexpensive to fix during the planning stage – on-the-job mistakes are not.
Think, Plan, Do
If you are considering a home renovation, make sure you research your project carefully to ensure you are making a wise financial decision and getting the biggest bang for your buck.
Simple, cosmetic upgrades may seem superficial but they do yield the greatest return on investment. And while kitchens and bathrooms can be the most costly to redo, they’re far more likely to pay for themselves in the long run.
If you are thinking of making home improvements with the goal of selling your home and you have the money available to invest in a renovation, consult your Real Estate Professional, Denise Dilbey, Broker to determine what improvements will yield the best return on your investment. This will help you avoid unpleasant surprises when it comes time to put up that For Sale sign on the lawn.
For more information, contact Denise Dilbey, Broker, Royal LePage Meadowtowne Realty, Brokerage. #realtorforlife 416.919.9802