If you’re a homeowner, and especially if you have resold a home, you know this: residential real estate has paid fat dividends in the past 10 years. If you’re thinking about doing some home renovations, it could be a way of adding even more value to an investment that is already appreciating very nicely. The same thing applies, of course, if you took advantage of the tax benefit programs of two years ago to do work that you would have done anyway.
But really, which renovations give you the most bang for your buck when it’s time to sell your home?
Top priority: kitchen and bathroom
Were you thinking of putting in a pool this year and redoing the basement four or five years down the road? Think again! Sure, the cool blue water in your swimming pool can improve your quality of life during the dog days of summer, but it wouldn’t be your best investment. Why not redo the kitchen or bathroom instead?
See for yourself.
These figures were obtained using a tool that the Appraisal Institute of Canada developed to provide a better idea of the potential payback value of the 25 most popular home improvements.
As you can see from the chart, none of the renovation projects will typically allow the owner to recover more than the cost of the project when the property is sold. For example, if you were to take on a major $250,000 project by investing $10,000 in each of the 25 areas, you would be in a position to recover $90,000 to $170,000 on resale, based on a wide range of factors that determine the selling price of a house.
Obviously there are exceptions: we all know people who invested in home staging and got back more than they paid when they put their house on the market immediately. But as a rule, a combination of two factors will determine whether investing in these home improvements is worthwhile:
- the payback value on resale;
- the utility value to you between now and the time you sell.
Similarly, some renovations might not make your house look any better, but they could be worthwhile because they save you money every year in addition to increasing your resale value. This is the case for projects that improve energy efficiency, such as insulating the attic, putting in more energy-efficient windows or installing a heating system that uses less energy. According to estimates in Maine’s Energy Efficiency Building Performance Standards, each dollar you save on your annual heating oil bill thanks to improved energy efficiency will increase the value of your home by about $20.
The upshot is that, on the whole, it would be a mistake to look at a renovation expense as an investment that will automatically be profitable. Before going ahead – especially if there is any question about the financial aspect of the project – it would be a good idea to discuss it with your financial services professional to see how this project might fit in with a more comprehensive financial plan.
(Source: Desjardins Financial Security Independent Network)