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Michael Alladawi, CEO & Founder of Revive Real Estate, is a Southern California real estate veteran with a proven track record as a builder, investor, and respected home flipper. Michael created Revive Real Estate to share his industry knowledge and help homeowners maximize their profits when selling their homes. Michael’s passion for his work is as big as his desire to create lasting partnerships. For Michael, it all comes down to how much value one offers, both in business and life relationships.
Home renovation projects are both exciting and stressful. You have an opportunity to customize your space to make it more functional, aesthetically pleasing, or both, turning your home into exactly what you want.
However, what happens if you decide to sell in the future? Will those investments pay off in a higher resale value? Are they appealing to prospective buyers? Unfortunately, in many real estate markets, the money you put into home renovation projects doesn’t always translate to higher list and sale prices.
The best approach to home renovations is to research and consider the short—and long-term value of your upgrades, especially if you know you’ll be selling your home in the future.
The Reality of Renovation ROI
Most homeowners get the itch to renovate or refresh different parts of their homes, whether it’s an outdated kitchen, a well-worn bathroom, or those spaces you swore you’d upgrade when you bought the house, like unfinished basements or spare bedrooms.
But before you go all in on renovation projects, it’s important to evaluate the return on investment (ROI) you’re likely to gain from your money and efforts. Many homeowners mistakenly believe that any home improvements will earn higher resale value, but that’s not always the case. Different factors influence how much a prospective buyer is willing to spend on renovations.
Overcapitalization, or putting more money into a home improvement project than you’re likely to get back, is a common problem for homeowners. Real estate markets shift like any other, and they’re ultimately going to determine what your home – and your improvements – are worth from year to year,
Here are some examples of high-value renovations that tend to bring lower returns:
- Luxury features: High-end appliances, countertops, or finishes are stylish, but what you pay for these upgrades is unlikely to come back to you at sale. This is especially true if your home is overvalued for your area, meaning it has a higher price or more luxurious features than comparable homes in the area.
- Bold design choices: Home renovations give you a chance to personalize your home’s features with your unique style. This is a fine choice if you’re planning to stay in your home for a while, but if you want to sell in a few years, these design choices may not appeal to prospective buyers.
- High-maintenance landscaping: Extensive landscaping with a lot of plants and flowers may be attractive to you, but it can be a chore for the next owner. Landscaping is also expensive to maintain, which goes into the cost of ownership for the next buyer.
- Garage conversions: Some homeowners are converting garages into living space to add square footage, but some buyers may prefer a functional garage that they can use for vehicles or a workspace.
- Swimming pools: Many homeowners think a pool will add value to their property, only to get a reality check when it turns away buyers. Pools are a bit polarizing – not every homeowner wants the liability and expense of maintaining a pool. For the right buyer, an existing pool saves time, expense, and hassle during installation, but you have to hope for them to come along.
- DIY projects: You may be proud of that DIY project you took on, but it may not be of the same quality or appeal as professional work. It’s best to invest in a pro to ensure the work is done properly and won’t turn off a future buyer.
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How to Value Home Renovations
It’s important to weigh the long-term impact of your home renovations as much as your short-term benefits. Increasing a home’s market value is an important factor, but it’s not the only one to consider.
For example, if you want to make renovation choices that make your home more functional or pleasing for you, that may be worth not getting your money back in the future. But if you’re making renovations knowing that it’s not your forever home, it’s a different story.
A well-planned renovation project can improve the look and practicality of the space. For instance, kitchens that flow into the dining area or spa-style bathrooms are always nice additions. These contribute to a more enjoyable home for you, but they’ll also likely appeal to prospective buyers.
Renovations can also focus on goals like energy efficiency and cost savings. For example, energy-efficient appliances, new efficient windows, upgraded insulation, or a new roof can make a huge difference in your utility bills over time. For most buyers, these upgrades offer value.
Know What Buyers Want
Think about how long you’re planning to stay in your home. Is it for the foreseeable future? Could it be a forever home? Or is it a starter home that you’re planning to sell eventually to get something bigger?
Keep in mind that situations change. You may not want to sell now, but circumstances like children moving out, elderly family members moving in, job relocation, or changing environments in the location could prompt you to sell in the future. Making good renovation choices now can help you get your money back.
Before you settle on renovation choices, take some time to research the “comps” in your area. You may even find some inspiration for your renovations and design choices that you didn’t realize were popular. But most importantly, researching comps helps you prepare for the expectations prospective buyers may have.
Depending on how old your home is, you may want to consider layout changes. It’s important to hire a professional designer or local home renovation expert for major renovations like these, which ensures you’re doing everything safely and helps you plan renovations that offer a higher ROI.
Maximize Your Budget
The old adage, “you have to spend money to make money” doesn’t always apply to home renovations. Sure, you have to spend some money, but you can stretch your budget further than you think with some strategic planning.
It’s important to start with a realistic budget for your project. Figure out which areas of your home need the most attention. Cosmetic upgrades are nice, but your budget should be allocated toward areas needing work first, such as structural problems. From there, you can determine your “wiggle room” for more upscale renovations.
It’s also crucial to understand where you can DIY and where you need a professional. Too many homeowners get in over their heads when they try to save on home renovations by doing the projects themselves, only leaving them with more expenses and hassles when they need a pro to fix it. Professional designers and contractors can help you use your budget wisely and make smart upgrade decisions.
Plan a High-ROI Renovation Project
Renovating a home can be a great way to maximize space and functionality while refreshing outdated spaces. However, it’s important to keep resale value in mind. Not all renovations give back the money you put in if you decide to sell in the future. Make sure you approach projects with careful planning and budgeting to get the home you want without sabotaging your home’s value if you decide to list.
You might also be interested in: 4 Tips To Boost the Value of Your Property
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