As a new home owner who is tempted to pour money into home renovation, you should ask yourself an important financial question. Will your renovation really add value? Or, even in an up real estate market, am I just pouring money down a rat hole? The answer might surprise you.
In most cases, renovating your home will increase its value. But it may not increase it enough to warrant the renovation. In other words, it may not get you a dollar-for-dollar return. Rather, you might get 20 cents of added value for each dollar you invest. Strictly speaking in terms of making money, you might be better off investing in the stock market.
How Do I Evaluate What to Renovate?
The first step is to make the sometimes difficult separation between what renovation would make you personally feel good, and what renovation (if any) your home really needs. In other words, it’s important to divide it into two separate perspectives: personal and financial.
Most people have good instincts in choosing what to renovate. They just tend to go overboard and spend far too much.
When deciding to upgrade, most of us are swayed by what is currently popular in home decorating. Granite countertops, marble flooring, solid wood cabinets, wood-metal double-pane windows— the list is endless. You can upgrade your home easily spending $50,000 to $150,000 or more in just a few rooms!
These quality-renovated homes become showcases where you can entertain friends and enjoy the good life. However, my suggestion is that before pursuing any renovation, large or small, do a cost versus value analysis. How much will the work actually add to the value of the property? Does what you are going to do make financial sense?
Don’t renovate to the point of creating your personal white elephant. A “white elephant” in the real estate trade is a home that has been overbuilt for its neighborhood. The owners have put far more in than they can realistically hope to get out.
{ 2 comments }
Absolutely right, you should start with your neighborhood and if you’ve go the worst house in the best neighborhood you will likely get a good return on your investment but if it’s the other way around….Rat Hole!
Interesting take on the improving your house. It’s fair to say in the UK that home improvements won’t always add value – it really depends on your taste!
Comments on this entry are closed.