Remodelling certain areas of a single-family house is an excellent way for homeowners to add increased functionality and beauty to a property at someone else’s expense. By choosing the right project to enhance your living space, a significant portion of the expense can be passed on to future owners in the form of increased property values.
Whether or not you are planning to sell your property in the near future, or you want to enjoy a few simple upgrades, there are a number of efficient ways to improve your home improvement ROI (return on investment). It is important to note, however, that not all home improvements are created equal. While transforming a bathroom into a spa-like space may sound appealing, the cost may not pay for itself when it comes time to sell. Replacing gutters or fixing a leaky roof, on the other hand, is more likely to increase a home’s value (despite not sounding quite as luxurious).
As housing prices continue to increase, now is the perfect time to invest in your home’s infrastructure. Prioritizing home improvement ROI could increase your home’s value even more so, which begs the question: how can homeowners be sure their home improvements are worth the investment?
Maybe you’re thinking of remodelling your kitchen. Or maybe you’re planning to put your house on the market in the spring. You want to spruce up your place but need to be wise with your cash. How do you determine which home improvements will maximize the return on your investment?
According to a recent Cost vs. Value report from Remodeling.com, most home improvement projects will add some value to your home. (1) But not all remodelling will increase your home’s value enough to recoup the entire cost of the improvement. And in some cases, your upgrade may not increase the value of your home, but it will add satisfaction to you and your family while you live in your house.
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What to Consider Before Renovating
The return on investment (ROI) of any given renovation project is a function of local market characteristics, the condition of the residential real estate market when the property is sold, and the quality of the work performed. Historically and on average, certain projects, such as the addition of a wood deck, kitchen and bathroom upgrades, and window replacement, have shown the greatest ROI regardless of the property’s location or the state of the residential property market.
Bigger renovations are not always better, as spending more does not always ensure greater value creation.
However, unless the remodelling project is designed to fix a structural issue or design flaw, it is unlikely that a homeowner will earn back more than the cost of construction. If cost recovery is as important a consideration as increased enjoyment from enhancing the property, then homeowners should consider the tastes of prospective purchasers when deciding which projects to pursue.
For investors remodelling the rental property, the cost of enhancing it can be recovered not only at sale time but also through the increased rental rates commanded by updated residences.
Still, homeowners need to be careful of which projects they choose to complete since the potential value gains can only be realized to the extent that there are buyers willing to pay for the renovations.
Consider Your Location
When considering any project, it is essential to ensure that the improvements made are appropriate for the particular type of dwelling and local property area. One mistake homeowners often make improving their homes well above the average for neighbouring houses. Buyers are attracted to particular neighbourhoods because of the services located nearby, and because houses in that area are selling within that buyer’s price range. Although a house improved well above others nearby may still receive the same level of interest compared to others being marketed, it is unlikely that it will command a premium well above average simply because of the extra improvements.
Real estate agents will know when percentage value increases are higher for the average- or below-average-priced homes in a given neighbourhood, and lower for houses priced at the top of their respective markets. It is during these periods of increased economic activity and increased real estate demand that improvements will have the greatest impact on a home’s market value.
Time will also have an impact on an improvement’s ability to increase property values. Making structural or design improvements, such as building additions or finishing raw space, will add value for a longer time frame than, say, updates to kitchens and bathrooms or technological improvements, such as new air conditioning systems because the latter tend to become obsolete over time.
Geographic location will also have a great impact on the quickest or greatest payback from projects. For instance, the maintenance time and cost of in-ground swimming pools make it difficult to recover the cost of installation, and in some cases will reduce the overall value of a home. However, this may not be the case in the southern regions of the U.S., where extended periods of extremely hot weather make swimming pools a valuable addition for some homeowners.
Best Return On Investment Home Improvements
Minor Bathroom Remodel
There are essentially two types of rooms that sell houses: kitchens and bathrooms. As it turns out, however, the greatest home improvement ROI coincides with remodelling the bathrooms. Instead of initiating a little project in each room, it may be better to conduct a minor bathroom remodel. There’s no need to gut the whole room, but giving each bathroom an updated look could go a long way. Try replacing the showerhead with a rain shower; it’s a feature most homebuyers will appreciate. Also, try replacing the vanity, as nobody wants to feel like they are using someone else’s old bathroom. At the same time, try updating the lighting to make things brighter.
Few rehabbing dollars go farther than those spent on the outside of the house. If for nothing else, curb appeal helps sell homes. New landscaping could be just what the home needs to look fresh and appealing. The aesthetic appeal of both the front and backyard may be the first thing buyers see, so make a good first impression and update the landscaping. There’s no need to go overboard. The best landscaping designs are the simplest, but the “lines” need to be trimmed and clean. A good landscaping job should look nice, but also not suggest a great deal of work is to be done.
Minor Kitchen Remodel
A minor kitchen can boost home improvement ROI without demolishing an entire room. Instead, try minor upgrades that make a big difference. Start by replacing the existing appliances with better, newer ones. Next, instead of replacing the cabinets, try refinishing the existing ones. A fresh coat of paint or gloss could make old cabinets look new. That, combined with new hardware, can completely transform a kitchen.
Attic Bedroom Conversion
Homes with the luxury of having a convertible attic should consider turning the space into an extra room. One of the single greatest ways to increase the value of a home is to increase the number of available rooms. Therefore, anyone who can add to their current room count should at least consider the possibility.
Major Bathroom Remodel
Now is the time to take the previously discussed minor bathroom to remodel a step further. Instead of simply replacing amenities and upgrading a few items, homeowners should consider boosting their home improvement ROI with a complete overhaul. Everything, from the shower pan and flooring to the lighting and plumbing, should be analyzed and criticized; if it’s not adding to the appeal of the bathroom, it’s taking away from it. Therefore, it may be a good idea to start with a clean slate. Upgrading the bathrooms completely, especially the master bath, can convince homebuyers they are making a good decision.
Major Kitchen Remodel
Not unlike the major bathroom remodel, a major kitchen remodel should require a complete overhaul; this is where everything will be taken out and redone. It is also a good idea to incorporate an open concept. If at all possible, try getting rid of a wall to open things up—buyers like kitchen with a lot of space, to host and to cook. Quite honestly, one of the best things homeowners can do is remove an unnecessary wall that separates the kitchen from the rest of the house.
Entry Door Replacement
As the simplest item on the list, the entry door replacement is perhaps one of the most impactful. Not unlike the landscaping, an entry door will most likely be one of the first things buyers see. This is the owner’s chance to make a good first impression. Remember, most people will decide whether or not they want to buy a home in the first few minutes of looking at one. As a result, it’s in a homeowners best interest to put their best foot forward and increase curb appeal.
Provided there’s room, and homeowners should consider the addition of a deck, patio or porch. The addition of an exterior structure like these can add a lot of perceived value to a home. At the very least, a deck could increase the usable living space in a given yard. At most, however, it could be a selling point a buyer was looking for all along.
Not all homes are granted the luxury of having a basement, but the that have underground living quarters may want to remodel them. Doing so could very easily increase the usable living space of a home. Instead of retaining a dark and dingy basement (which could hurt the prospects of a sale), try turning the basement into its selling point.
Outside of a fresh coat of paint, a new entry door, and perhaps a garage door replacement, nothing can make the exterior of a home look better than a brand new set of windows. The clean lines of new windows can very easily make a home look better from both the inside and outside. Additionally, new windows should be a lot more energy-efficient. Proper windows could save new homeowners a lot of money on energy bills, which is always appreciated.
When to Remodel or Move On
Space and Location
Before you start weighing the pros and cons of renovating your current home, it’s important to assess how its location (neighbourhood, town, and region) and square footage (both present and potential) meet your needs.
Most people consider remodelling their home because they’re pleased with its location, but its square footage and layout are no longer adequate. If that’s the situation for you, it’s time to take a good hard look at your home’s potential.
Can you realistically reconfigure your interior walls to create the kind of spaces you’d like? Do you have a basement you could finish to increase your square footage? Is your lot big enough to accommodate an addition? The answers to these questions help determine if remodelling your home is a viable solution, to begin with. Check out our range of Melbourne home renovations for your dream house.
Equity and Availability
If you’ve been in your home for a long time, you probably have a greater amount of equity in your house — and more savings in the bank — than you did just a few short years ago. Having a considerable amount of home equity is a good reason to renovate, especially if you like the idea of improving on your investment.
If home equity isn’t a major factor for you, either because you have very little or you don’t mind investing it in a new house, it’s a good idea to get familiar with your local real estate market.
If you’d like to stay in your neighbourhood, town, or area, start keeping tabs on what’s available in your price range. A wide range of factors, including current market conditions and the extent of available inventory, can determine whether or not you’ll be able to find a house that fits your budget and ticks all the boxes on your list.
Whether you decide to renovate your home or move to a new one, you’ll incur costs along the way. Even if you don’t wind up going with the more affordable or cost-effective solution, you still need to consider all potential expenses before you can make an accurate comparison.
Moving to a New House
Prior to selling your home, you may need to make a few minor repairs and/or upgrades to get it listed at your desired asking price. Even if this only includes minimal tasks like carpet cleaning, painting, and small curb appeal enhancements, the average homeowner spends over $6,000 to get their home ready for listing.
You’ll also need to factor in moving costs, even if you plan to pack everything yourself and rent a truck (and if you do plan to move, make sure it is feasible). And unless you plan to sell your home without a full-service agent, you can also expect to pay up to 6% of your sale price in agent commissions (for both your agent and your buyer’s agent).
Finally, don’t forget about the hidden costs of upgrading to a larger space, if that’s part of your plan; bigger houses usually come with higher property taxes and maintenance and utility costs.
Remodelling Your Current Home
While there are many moving parts in the home renovation process, the costs tend to be fairly straightforward when all is said and done. That’s because you set a budget from the start, and then figure out what you can accomplish within your budget.
To make sure your renovation is worth the investment, it’s important that you don’t overspend on any one space. For example, if your home is worth $250,000, and your kitchen is about 10% of your square footage, you shouldn’t spend more than $25,000 to renovate it.
Your home renovation budget should factor in the cost of permits, design plans, materials, and labour; it’s also wise to reserve at least 10% of your budget for unexpected issues and hidden costs, especially if you’re remodelling an older home.
A big advantage of going with a design-build firm like Hogan Design & Construction is that we handle every aspect of your project in-house. Besides helping you understand what to expect each step of the way, we provide accurate estimates throughout the design process and set a fixed price before construction begins. Planning for a new look for your house? Look no further! Hitch Property Constructions is here to help in your home renovations.
Time and Process
It can take days, weeks, or months to sell your home and move into a new one, depending on your timing and local market conditions. Even so, once your house is under contract, it’s fairly easy to predict your closing date — and your moving date — with more certainty. You can get an idea of the average amount of time it takes to sell a home in your area simply by observing the market.
Remodelling your home, on the other hand, requires an added degree of flexibility and patience. Even though remodelling projects are scheduled out in advance, they’re still subject to weather delays, design changes, and unforeseen structural issues, any of which can extend the process beyond its initial end-date.
Research Before You Renovate
The tricky part to all of this is that we’re looking at national averages. Individual markets place different values on different home improvements. In San Francisco, for example, nearly every project had close to 100% or more return on investment.
The best way to gauge what you can expect in terms of resale value on home improvements—especially if you’re planning to sell soon—is to talk to a real estate agent who is an expert in your market. They’re sure to know the local trends, and they can show you how other homes with the features you want to add are selling. That way, you can make an educated decision before you start ordering lumber and knocking out walls for a massive remodel.