Which Renovations Are Good Investments?
Whether you’re a child debating “candy bar or piggy bank”, or a middle-aged couple deciding between a new car or beefing up your mutual fund portfolio, the truth remains, saving is boring and buying is fun.
Interestingly, home improvements are a great way to achieve both at the same time.
Home renovations are the ultimate two-for-one special. On one hand you get to improve the quality of life for you and your family, and on the other hand you’re building equity in your home by increasing the resale value. What other investment do you get to use and enjoy before cashing it in?
Before you start to plan, make sure to set out your priorities.
The first step to determining the best home improvement project to invest in is to decide which is more important to you, return on investment (ROI) or picking out a specific renovation that you’ve always dreamed of.
For example, let’s say the cost-to-value of a new swimming pool in your area is 20%, meaning you’ll gain 20 cents in equity for every dollar you put into the project. If ROI is your primary goal, then a pool would definitely be something to scratch off of your list. But, if you plan on staying in your home for at least five more years and have young children who love to swim, perhaps a pool is a great way to buy something exciting while boosting your home value at the same time.
So which renovations provide the highest cost-to-value ratio?
Unfortunately, homeowners recoup more money by investing in indoor systems and other home maintenance than any other improvement. Yes, I know. Boring! But, buyers want assurance that all the gears and cogs that make a house tick are in working order. Heating, wiring, plumbing, siding, roofing…this is where the money’s at, even if they’re not the sexiest of projects.
Next on the list is upgrades to outdated features in your house. If your kitchen counters scream 1960s or the bathroom looks dirty even after you’ve scrubbed it clean then these areas of the house could be great places to start. The ROI on wet areas can be 70% of the initial cost. Just be careful not to “over capitalise.” Over capitalising is where the emotion overtakes the logic of the initial decision to upgrade by installing features too luxurious for your postcode.
So if you’re the only house in the street with a bali style grass hut and jacuzzi in your backyard, then most likely you’ll recoup less of the purchase price when it comes time to sell.
Let’s consult the experts.
If you ask any real estate agent about renovations as an investment, they’ll tell you to head straight for the kitchen and bathroom. Being right there in the sales game, agents understand that you have to put yourself in the shoes of a potential buyer in the future when figuring out where to tinker with your house in the present. This is a general rule but there are some buyers who want the flexibility to transform the space into their very own.
Think about what aspects of your home all buyers will be interested in. Not everyone needs a rec room or a swimming pool, but everyone has use for quality kitchens and bathrooms, so they are pretty safe bets for a decent ROI.
And the runner up is…
Other projects to consider are anything that improves curb appeal. New windows, doors, landscaping, or even a fresh coat of paint will do wonders for helping you achieve top dollar on the day. While these smaller projects may not pay off big in and of themselves, a potential buyer who is wowed from the get-go is far more likely to pay your asking price and remember on the day of auction while all interested parties are facing the Auctioning Agent they are also emotionally buying into the new street appeal you have just invested in.