Most frequently, upgrades do not pay for themselves. Learn how to renovate strategically and which projects will add the most value to your home by reading on.
• There are four types of renovation projects: the fundamentals, curb appeal, greatest return on investment, and projects of personal interest. Not all of them offer a substantial return on investment.
• The essentials include a non-leaking roof, functioning gutters and downspouts, a dry basement, a dependable furnace, solid floors, and well-maintained walls and retaining walls.
• Curb appeal features include a well-kept lawn, inexpensive landscaping, new interior and exterior paint, clean carpets, and updated address numbers.
• The most cost-effective upgrades are new siding, kitchen renovations, and new windows.
• Some examples of passion projects are swimming pools, tennis courts, hot tubs, wine cellars, and game rooms.
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The Difference Between Investors and Owners
There are significant differences between how owners and investors approach home renovations.
If done correctly, updating an investment property is a sound investment strategy. Successful fix-and-flip professionals are investors with a singular objective: "Buy low and sell high." They know that a little sweat equity goes a long way in making a real estate investment profitable, so when they purchase run-down homes at bargain prices, they perform the majority of repairs themselves to save money.
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This type of investor also selects renovation projects that will yield the greatest return for the least amount of effort and expense. In order to avoid over-improvement of the property, the first step is to evaluate the other houses in the neighborhood. Adding crown molding and high-end countertops to a fix-it-and-flip project is unlikely to result in a significantly higher selling price if none of the comparable homes have these features.
In contrast, homeowners frequently take a less strategic approach to home improvement. As a result, they may invest significantly more money in a project than they will receive when they sell it. It is prudent to make a few improvements, but it is unwise to overdo it in anticipation of a return upon resale.
How do you determine which upgrades are worth the trouble and expense? To make the most of your remodeling budget, it is beneficial to understand the typical return on investment for four types of renovation projects: the basics, curb appeal, the best value for money, and passion projects.
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1. The Basics
When purchasing a home, every buyer expects the essentials to be present. This includes a roof that does not leak, functioning gutters and downspouts, a dry basement, a dependable furnace, solid floors, walls that are in good repair, functioning retaining walls, and plumbing and HVAC systems that are operational. All prospective homebuyers, including first-time buyers, have a list that includes all of these features. In upscale properties, the essentials may also include a specified number of bedrooms, bathrooms, multiple-car garages, and any other neighborhood-standard features.
This does not suggest that you must upgrade everything in your home. You can concentrate on routine maintenance and smaller, less expensive enhancements that keep everything in working order. Adding the essentials to a home that lacks them does not add its value rather it simply brings the property up to par with the rest of the homes in the neighborhood, allowing you to ask a comparable price.
However, while you want your home to stand out from the competition, you shouldn't make upgrades that significantly exceed the norm in the neighborhood. You will not only lose money, but you may also deter prospective buyers. Before you invest a significant amount of money in an elaborate renovation project, you should evaluate what the competing properties in your neighborhood offer. Determine how similarly priced homes in your neighborhood compare and make adjustments based on your particular market.
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2. Curb Appeal
Efforts to improve the property's curb appeal make it more appealing to prospective buyers upon their arrival. While these projects may not add a substantial amount of monetary value, they will help you sell your home more quickly, and you can save money and time by performing much of the work yourself.
Never underestimate the power of a good first impression, which includes a well-kept lawn, low-cost landscaping, fresh paint inside and out clean carpets, and new exterior fixtures. Lighting is another important feature (exterior and interior), but excessive lighting can drain your finances or overload your electrical system. If you want your home to appear welcoming and bright, consider installing simple lighting for a contemporary upgrade.
However, err on the side of plain vanilla. Now is not the time to make daring design choices for the interior. Choose understated, elegant designs that will appeal to a wider audience. If you need assistance with these projects, you can consult a professional interior decorator. Just ensure that you favor inexpensive options.
Avoid bold design choices in your home decor. Subtle accent walls and tasteful backsplashes will greatly enhance the aesthetic appeal of your home.
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3. Best Value for Money
The projects that add the most value at resale are the favorites of fix-it-and-flip-it professionals, and homeowners should prioritize them as well. Despite the fact that these upgrades will not recoup their entire cost, some will come close.
The National Association of Realtors (NAR) identifies wood flooring (new or refinished), kitchen renovations (new countertops and high-tech appliances), upgraded bathrooms, and basement or attic conversions as projects that typically recoup 80% or more of their cost at resale. Certain exterior improvements, such as roofing, siding, doors, windows, refurbished decks, and energy upgrades, also provide excellent return on investment.
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4. Passion Projects
Unconcerned with cost, homeowners make investments in activities they enjoy, such as swimming pools, tennis courts, hot tubs, wine cellars, game rooms, and even ponds, as passion projects. However cool these amenities may be, they are very costly for the homeowner to install, and most potential buyers (without your passion) will not pay a premium for the tennis court.
A swimming pool, for instance, rarely increases the value of a home. Not only does it cost a small fortune to install an in-ground pool, but many home buyers view them as a high-maintenance hassle and a year-round safety hazard, and they are only usable for a few months out of the year in most climates.
There's no harm in adding these features to your home, but you shouldn't expect buyers to pay a premium for them when you decide to sell. And be wary if the renovation involves the replacement of a common feature. If every home in your neighborhood has a two-car garage, you may want to reconsider converting yours into a game room. Do you wish to be the only home in the neighborhood without a covered parking area?
Other conversions that may not provide a return on investment at resale include:
• Removing walls to expand a room (Unless there is a no need, such as connecting the dining room and the kitchen, think twice about removing a wall.)
• Removing a bedroom to enlarge a space
• Remodeling the basement (unless it's a complete conversion to a real living space, focus on smaller improvements such as increased storage space.)
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Which Renovations Increase the most Value of My Home?
Certain home improvements typically recoup 80% or more of their costs upon resale, including full kitchen renovations, wood flooring, and upgraded bathrooms, as well as roofing, siding, doors, windows, and energy upgrades.
How do I improve my home's curb appeal?
A well-kept lawn, low-cost landscaping, new paint (at a minimum on the front door), and updated address numbers will increase the curb appeal of your home for every potential buyer who approaches it.
Why do swimming pools not increase the value of my home?
Pools rarely recoup their initial investment upon resale. Not only do they cost a fortune to install, but many prospective home buyers view them as a maintenance nightmare and a safety hazard.
The Bottom Line
Regardless of the project you are contemplating, keep in mind that your primary residence is not merely a house; it is your home. Regardless of the impact on resale value, add the amenities you desire if you intend to live in the home for a long time. When it's time to sell, do the bare minimum to bring the property up to par with the neighborhood and add curb appeal, but don't bother with major renovations solely to increase the asking price.
Complicated custom additions may appeal to you more than to potential buyers. Small, décor-neutral renovations that improve your home's functionality are preferable. And remember, even with known value-adding real estate renovations, there is a good chance that you will spend more than you will recoup upon resale.
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