How to Decide If a Home Renovation Is Worth the Cost
Owning your home is more than just housing, it’s investment management. A house or apartment is often your biggest asset, so instead of just enjoying it, you should be constantly worrying about improving it in the hope that you might someday be able to sell it for much more than you paid.
It’s like the moment you bought your house, you started planning a radical change—add or redo a bathroom, finish a basement, or modernize a kitchen. Whenever you are in doubt about how expensive these renovations will be, someone invariably tells you that it will increase the overall value of your home (because no one else stays in the house all the time – the average homeowner lasts eight to 13 years ). middle before moving again).
But how much will your renovation increase the value of your home? What will be the return on investment (ROI) of a refurbished kitchen, bathroom, or other project? Here’s how to understand it.
Style note
Before we get into the numbers, there’s one thing to keep in mind – personal taste. Home is a private space and your ideal kitchen may not belong to anyone else. A kitchen built to your individual tastes may make you feel warm and fluffy inside, but someone looking to buy your home may see it as a renovation that reduces the value of your home because they will have to spend extra money to remove it. If you’re thinking about future returns on your investment, forgo personalization and creativity and play smart.
What is the return on investment?
In a sense, ROI is a simple equation: divide profit by cost. If you spend $20,000 on a kitchen renovation and end up selling the house for another $15,000, you’ll get a decent 75 percent ROI. Congratulations! Yes, it’s true – ROI on repairs is almost always below 100 percent, meaning you won’t actually get your money back. The average return on home renovation is around 70 percent , which is one of the reasons many people lose money trying to sell their home .
However, renovations can make your home easier to sell, sell faster, and improve your quality of life while you live in it. The trick is to evaluate the ROI before deciding which renovation is worth your time.
To understand this, you need to know how much profit you can expect when you sell your home. A good starting point is Remodeling Magazine’s annual “Cost and Value” report , which takes data from remodeling projects around the country and calculates the typical ROI for various projects. You can view various projects specific to your region or view the country averages. These numbers may not be 100% accurate for your project, but they give you a good idea of how much money is returned for different types of repairs. For example, an average kitchen remodel brings in an average 71% ROI, while a kitchen overhaul has a return of only about 53%. Using this data gives you a starting point for figuring out what the ROI for your particular project could be.
The sweat of justice
Keep in mind that data like this usually assumes that you are using a contractor for your project and therefore includes labor costs. Equity is “free” in monetary terms, so a kitchen remodel that would cost someone $30,000 and get them $20,000 back could only cost you $15,000 because you’re not paying for labor; suddenly your ROI is much higher. On the other hand, if you do DIY repairs, you may not finish them to a professional standard and your ROI may drop as a result.
You can never calculate your ROI with absolute certainty. The housing market is changing, and your design choices (and the desires and priorities of home hunters in your area) can change that math at any time. But by starting with some real numbers, you can at least be able to make a series of educated guesses that will get you pretty close.