Cost vs. Value: Making Home Remodeling A Slam Dunk
Having been through a four-year remodel that turned our once-duplex into a single family home, I know a little something about home renovation. And I’ll tell you that it’s no picnic. There are loads of choices to make, and it can be exhausting. And the last thing you want to do is to sink way more money into your home than you’ll ever get back out of it.
That’s why it’s important to look at not just the cost of a potential home renovation, but the way that renovation will increase your home’s value.
In my family’s case, many of the renovations we did were not negotiable. The upstairs bathroom had a huge hole in the floor when we bought the house, and the wiring was more than fifty years old. Clearly, we had work to do there.
But we were careful not to out-improve the area our home is in. We could have gone all out on fancy fixtures and finishes, but we didn’t. Partially because we didn’t want to lay out the cash, of course, but also knowing that should we have to sell the house, we wouldn’t get our money back on the expensive stuff.
So how can you figure out exactly what a home project is likely to cost, and what kind of value it will drive in your home’s potential resale price? And should that be the only thing that factors into your decision of whether or how to renovate? Let’s talk about it.
Cost vs. Value: Running the Numbers
One way to figure out which improvements will give you the biggest ROI is to check out the annual Cost vs. Value Report from Remodeling magazine. The comprehensive report compiles extensive data on home improvement costs versus the value they drive in various areas of the country. You can look at national averages or, better yet, drill down to your specific area.
The report will tell you what it is likely to cost for you to complete a certain type of renovation. Then it will tell you the average resale value of that particular renovation.
For instance, on a national average, it costs about $1,826 to replace an entry door with a new steel door. And the average resale value of that upgrade is $1,368–a 74.9% return on investment. Or you can replace your garage door for about $3,611. That has an average resale value of $3,520–a 97.5% ROI.
Some enhancements, like adding a master suite, have about a 50% return on investment. So if you’re planning to sell any time soon, you’ll want to steer clear of renovations like this, if at all possible.
With this said, your mileage may vary. You’ll want to check out the numbers specific to your area to get local data.
Cost vs. Value: Reducing the Numbers
One thing commenters point out about the Cost vs. Value Report is that it seems to assume the renovation includes paying for labor and using fairly upscale materials. After all, they put the national average cost of a major kitchen remodel at $66,196. There are houses in my neighborhood that have sold recently for less money than that!
This report is a good place to begin, but you’ll want to factor in the real numbers of your actual renovation when making your decisions. For instance, maybe you have a terribly outdated kitchen.
But you can do some of the remodeling work–especially the demolition work yourself.
And you choose mid-range appliances and finishes that look nice but don’t cost an arm and a leg. Suddenly that $60,000+ renovation actually only costs you $30,000. And there’s a chance your major overhaul will add more than that to the value of your home.
There are typically many ways to bring down the overall costs of a renovation project. Shop for appliances at the scratch and dent store. Get your hardware and lightning from a Habitat for Humanity or another resale shop. Leverage sales at your major hardware chain. And do as much of the labor as possible on your own.
By reducing the upfront cost, you’ll see a better ROI on the project in the end.
Finance Your Home Improvement
Your numbers are making sense? It is time to consider your financing options. You can finance your home remodeling in the old way by borrowing money from friends or family, get a loan from your bank/credit card. On the other hand, you can do this in the 21st-century ways, by checking out online lenders like: EVEN or SoFi and compare hundreds of competitive financing offers.
Other Factors, Too
Of course, when we’re talking about renovating your home, we generally aren’t just talking about a soulless piece of real estate. We’re talking about the place where you live your life. And unless you’re planning to sell in the very near future, deciding when and how to renovate won’t be completely about the numbers. Here are other factors to consider when deciding whether or not to renovate your home:
The Quality of Life Factor
Some renovations are worth taking a financial hit to complete, and some just have to get done. For instance, the ROI on new siding for your home isn’t great. But if your old siding is cracked and letting water leak through to your walls, it’ll have to be replaced whether you like it or not.
Other improvements are really more about your personal quality of life than they are about your wallet. Sure, you want to make reasonable financial decisions. But it can be worth putting some money into your home to make it a place you truly enjoy living.
If you love to cook, this might mean a simple kitchen remodel that allows for more space to prep and nicer appliances. Or if entertaining is your jam, a back yard patio with a fire pit may make your life even better. Maybe you have mobility issues or a child with special needs. In this case, you can’t put a price on the types of improvements that allow for independence and overall higher quality of life.
You don’t have to drop a hundred grand into a better kitchen just so you can play chef. But you can make reasonable upgrades to your home just because they make your life better or easier–not necessarily because they’re a good financial investment.
How Long You’ll Stay
With that said, you should be the most concerned with the financial piece of this equation if you are planning to move out of your home sooner rather than later. If you’re moving within the next five years, weigh any improvements very carefully. Otherwise, you might dump money down the drain for no real reason over the long-term.
If you’re planning to sell soon, focus on investing in high-impact places, but do it as cheaply as you can. The less money you put into a house you’re going to sell soon, the more you’ll get out of the house when you do make that move. And that just gives you more money to make your next home purchase your dream home.
On the other hand, if you’re going to stay in your home for a decade or more, making a quality of life improvements may make more sense. And the ROI equation may be thrown off somewhat. So keep that in mind as you’re thinking through the financial consequences of this decision.
What Your Neighborhood is Like
Finally, keep in mind that the Cost vs. Value Report focuses on larger urban areas across the U.S. They can’t run a report on every small town or even a smaller city. So always take the information in a report like this with a grain of salt.
The best place to look, instead, for high-ROI project is at your own neighborhood. Pay attention to the homes that have recently sold. What features do they have that your home doesn’t? An upgraded kitchen? A nice front porch? Real curb appeal?
Bringing your home up to par with others in the neighborhood can be a good way to get a return on your home improvement investment. But you also don’t want to out-upgrade your neighborhood. Go too far, and you’ll find yourself out-pricing your neighborhood, which isn’t a great place to be when you’re trying to sell.
Deciding to upgrade your home can be great. But it’s a tough decision, one that a lot of money often rides on. So be sure you are thoughtful in how you approach this decision, and use tools like the Cost vs. Value Report to make a more informed choice.