I once heard an art collector and dealer say that she only collects art that she enjoys—that way, should the value of the artwork not appreciate, her worst case scenario would be to own something she enjoys having on her wall. I think that this can apply to many home renovation projects. Like the art example, it doesn’t mean that you won’t get a return on investment for your home renovations, it’s just that it’s not guaranteed.
I spent an hour searching the web looking for ROI figures for various renovation projects and I found lots of examples. What surprised me was the vast differences in the data. Let’s look at some stats I found on www.ontariocontractors.com/roi.htm that they cited based on research done by the National Association of Remodeling Industry (NARI).
Although each of the renovation projects will get you more money on the resale of your home their stats indicate that only painting will get you better than 100% return. Is this correct? I don’t know. What’s interesting is how these stats compare to some of the others that can be found. Let’s look at how NARIs stats differ from those cited by Royal LePage.
Are the Royal LePage stats correct? I don’t know that either. What is immediately noticeable is the vast difference in the information between these two, by all accounts, reputable sources. It is up to you to do a little homework and use your own common sense. Maybe I’m an optimist but I like to think that most people and companies are honest and I’m certainly not trying to say that there is anything untoward going on with either source. But, you have to wonder about the vast differences in the information you can find.
I suspect that it’s more complicated than either stats indicate. For example, these factors can also apply:
- How soon after the renovation are you selling your home?
- Does your design sense or needs match current trends?
- What is the quality of your renovation—DIY or high-end craftsmanship?
- Did you over-renovate for the value of your home? E.g., Did you build a ______ suitable for a million dollar home on a $200,000 home. Fill in the blank with: kitchen, bathroom, deck, etc.
And, keep in mind:
- A renovation starts depreciating as soon as it is complete.
- Design styles can change so your “in-style” renovation can become out of date.
- The real estate market can change. And sometimes quickly.
- Some things traditionally have a negative impact on your selling price. E.g., Pools, home offices, hot tubs, saunas. Consider what one realtor commented on a Real Estate Appraisal site: “I was the buyer’s agent for a home that had a… built-in hot tub. The buyers gave exactly $0 for the hot tub. They give minimal to zero value, even [when] built-in, because the effective life is low and the maintenance and operation costs can be significant.” For the right buyer, it may add additional value but for many more these kinds of home improvements can cost you because the buyer deducts the cost of having to remove them.
All of these things can change the ROI of any renovation project—and that’s assuming everything was done with permits and met code.
So, what’s the answer? Renovate. By all means renovate!But, understand why you are doing it. If you are an experienced real estate investor you probably already know from experience the return on investment you get by doing various renovations. If you are not then you should recall the art collector story above. Renovate because you will enjoy the extra space, or the deck, or the finished basement, or the joy of showing your home off to friends, or whatever is important to you. That way, if you don’t get the ROI you had hoped for, you will still have the joy of your renovation project.
That’s all for now. Until next time, we’ll keep “Building it Right!”™