4 tips for selecting the best renovation projects to maximize return on investment (ROI)
You may be considering a new renovation project for your house to try and add some value to it or maybe you’re looking to sell your house in the near future and want to get it ready for the current market. There are many things to consider before you haphazardly pick your next project. If your goal is to maximize your return on your investment, consider these four factors:
What parts of the house are in the worst condition?
This is important to ask yourself when selecting a new project because an obvious mistake would be to renovate your kitchen that is 5 years old while your bathroom is 25 years old and still looks like its living in the 90s. The better value add to your property is going to come from the components that are in the biggest need of refreshing and updating. A potential caveat to this are old properties that have solid bones and carry a certain character. Old houses often have beautiful support beams, stone work, original hardwood flooring, brick work, etc. throughout a house that provide their own value you may want to leave to maintain the integrity of the house.
Consider curb appeal
Return on investment has a lot to do with appeal to potential buyers and updating the front door, landscaping, and overall exterior look of your home can really excite potential buyers. The highest ROI is going to come from projects that future buyers want the most. This can start with a first impression. Ensuring that the plants are alive and well in addition to making sure your front door looks alive and well. For the relatively low cost of replacing your front door, you can often receive a lot of value by the way of first impressions. If you have a front porch, resurfacing the existing steps, floor boards, and posts may be critical for guests to feel welcome. Or windows and exterior trim may provide the rejuvenation your house needs.
Understand how your property ties in with the comparable market values.
The sooner you’re looking to sell your property, the more important this becomes. The price of your home is determined from the comparable homes in your market. This is why choosing renovations that are popular in your area are going to help your ROI. You may choose to add a garage to your existing home because garages have become very popular in your neighborhood and, without doing so, it may become very difficult to sell. If you’re outsourcing a project like this to a quality contractor, prices may range greatly from 15 to upwards of 50 thousand dollars plus depending on the size, whether there is heating, electrical, plumbing, and so on. The important thing to consider is what the specifications of other garages are in your neighborhood? Are they mostly one or two car garages? Are they detached garages with their own running water? This is somewhat of a keeping up with the Jones’ because if your property has a one car garage but the house in the neighborhood all have 2 and 3 car garages, potential buyers may be less interested and so your return will be less. The after repair value depends on the comparable properties in your market. Basically what this comes down to is, choose projects that other people want done in their homes.
How can you get a feel for the current market trends? Ask your local real estate agent. Real estate agents should have a great grasp on the what homeowners are currently looking for considering they view and analyze and talk to potential buyers and sellers on a daily basis. Finding the right real estate agent could be its own separate blog post, but assuming you’ve find a good one this may be a great way to help make a decision. Additionally, viewing similar properties on Zillow.com or Realtor.com may be another good way to get a grasp of the current market trends.
Consider cosmetic versus structural projects.
Cosmetic projects can certainly add value, improve the turnover rate, and add curb appeal if they are exterior improvements. Your house may also not sell or pass inspection if there is a faulty water heater, a leaky roof, a bathroom with leaky plumbing, or any other water damage. Consider completing these projects in tandem with cosmetic projects to help improve the value added. If your bathroom needs renovation and the plumbing is faulty make sure the plumber or general contractor addresses all the components of the projects before they patch and finalize their work. Does your basement take on water whenever it rains? Consider re-grading the exterior so water flows away from the house in conjunction with adding a deck or patio. These types of strategies can help cut down on costs for the future.
The most important decision making factor is to consider your comparable market values because this will determine your top line (or how much money you will get in return from your investment). Considering the balance between the cost to complete the project and how others will value it is the fundamental principle of how you determine how much return will be realized. Focus on projects that are highly sought out in your area but are also in desperate need of updating and you should be able to determine the next renovation for your home.