Here’s a question I get asked very often. “Should I renovate my house?” The answer to that question is, “It depends.” Yes, a frustrating answer, I know. But it really does depend.
Usually the reason people want to do major renovations is either 1) to enjoy the improvements while continuing to live in the home, 2) increase their home’s market value, or 3) both.
There are different levels of renovations, so before we go any further, let’s describe them.
- The real ‘fixer-upper’. This is a house that is barely livable, or not livable at all. These are usually foreclosures or homes that sat vacant for a long time.
- Really nice home, but outdated. An example of this is a home that is in great shape, but is outdated and long overdue for an overhaul. An example would be a home that hasn’t had any renovations since the 1970s. A home as outdated as this has some real catching up to do. People often describe homes like these as having “good bones”.
- Home that is in great shape, that just has a bit of catching up to do. This is the type of situation that I’m going to focus on in this article, since it is the most common of all the scenarios. An example of this is a home with a 20 year old kitchen that has otherwise been very well maintained with little or no deferred maintenance.
Let’s also make a distinction between renovations and improvements. A renovation is re-doing or updating a part of the house that already exists. Examples would be renovating kitchen, bathrooms, refinishing floors, replacing windows, etc. An improvement is adding something to the property that didn’t exist before. Some examples of this might be adding a deck, storage shed, finishing a basement, etc. This article focuses on renovations, not improvements, since that is a separate topic.
Ok, back to why someone might want to do a renovation…
Once I know the reasons that someone might want to improve the home, the answer is still, “It depends.” More frustrations about this answer…
One reason is because it depends on how long they plan on staying in the home. If the plan is to make major renovations and then move fairly soon (let’s say within a year or so), it is almost always a bad idea from a financial standpoint. That is because major improvements are horrible at recapturing the amount of money invested in the short term.
This might sound counterintuitive, so let’s walk through it. Every year Hanley Wood publishes a Cost Vs Value report where they calculate the cost of a renovation and compare it to the amount of value recouped. In the report, they analyze 22 categories of remodeling and renovation projects. Of those categories, only ONE had a recapture value of over 100%, and that was for replacing garage doors.
Let’s use the type of renovation that comes to most people’s minds first: kitchen remodel. For the Middle Atlantic region, which New Jersey is a part of, the cost recouped for a minor kitchen renovation is 79.7%, while a major kitchen remodel is only 52.3%.
That doesn’t sound like a very good investment, does it? That is why my answers to the previous questions were, “It depends.” That doesn’t mean that renovating your home is a bad idea. As a matter of fact, it’s a bad idea NOT to keep your home updated throughout the years.
So, let’s boil it down. If your intention is to invest money into your home for the sole purpose of increasing your resale value, then it is best to stick to the cosmetic items. The best bang for your buck will come from deep cleaning, decluttering, painting, carpet replacement, professional staging. Once you start spending more than a few thousand dollars, then you really need to research how much money that is going to increase your home’s value.
However if you plan to stay in the home for a few years, then it can be a great idea to make the renovations. The reason for this is twofold; you’ll have the benefit of a few years worth of appreciation to help recapture the investment AND you actually get to enjoy the improvements that you’ve made while you still live in the home.
Think of it this way. If your home’s value is lagging the neighborhood by $10,000 because it doesn’t have certain updates that everyone else does, but it’s going to cost you $20,000 to make those renovations, then it doesn’t make any sense to do it if you are going to be selling soon.
Let’s say you want to move in a few months. Your kitchen could use an update. The homes in your neighborhood that have recently sold all had updated kitchens and their sale price was $500,000. Since your kitchen isn’t update, it will most likely sell for around $490,000. In order to get your kitchen to the same shape as theirs, it’ll cost you $20,000. From a financial standpoint, it would be a bad investment. Yes, the renovated kitchen will certainly make the house sell easier, however, it’ll be $10,000 that you won’t get back.
However, if your next move won’t be for a few years, it would make much more sense to make those same updates now. Then you’ll have both benefits of enjoying the new updates PLUS the benefits of home price appreciation over time.
So, if you aren’t moving for a few years, go ahead and make those improvements now and spend the time enjoying them!
Or, if you have already made renovations a few years ago, but want to move now, give me a call! I would love to help in any way I can!
