Get the best (ROI) Return on Investment with your Renos and Upgrades

"So What will give me a High return?" The answer is usually "IT DEPENDS"!!!

Nick Boothby is often asked about Return on Investment (ROI) of Renovations Upgrades and Maintenance. Sellers are willing to invest money in their homes and wonder if they will get their money back when they sell. Since renos and upgrades can be substantial this is a good question!

Remember that while some home improvements might improve your quality of life they might not increase the value of your home.

There are many factors that affect the return you can get when you upgrade. Where you live, province, city neighbourhood, socioeconomic status, economic conditions such as interest rates and jobs in the area, perceived value, fashion, weather (very hot, very cold), number of kids in area, age of your home.

Sometimes the answer is easy. Renovations such as painting almost always give good return, in particular, if the paint is a bit tired or colours are dated. On the reverse side some renovations and home improvements offer bad return from the point of view of getting your money back when selling. In this category we find upgrades that are valuable to the current owners but are not attractive to all potential buyers. (IF the right buyer is found however return can be very good). Very strongly coloured tiles in bathrooms or kitchens, swimming pools, wine cellars, dance floors, expensive very specific build-in entertainment centres, outside hot tubs, unusually high quality materials, fixtures and finishes, or elaborate basement bars, are all examples of home improvements that will probably not appeal to everyone and will likely not payback as well.

Another factor in how well a renovation or upgrade will payback is the "emotional appeal" of the renovation. Although a new roof might be a more solid investment, its hard for a buyer to get emotionally involved with it. A nice new clean room with a fresh coat of paint goes straight to the "feel good" area of people's brain and return in much larger percentage. Its a bit illogical but emotional appeal is a big factor.

Enough talk, How much are we talking about?

All agree that a home that is in good shape, has modern amenities and is attractive and has curb appeal, sells better than one that looks dated and tired, but what is the actual return on investment for renovations and improvements?

Not surprisingly, there is a difference of opinion on the return to the seller depending on WHO you ask! Probably the most reliable source of information comes from a survey of several hundred appraisers conducted in 1999 by the Appraisal Institute of Canada.

TOP 10 Return on Investment projects according to the Appraisal Institute of Canada.

• Painting and decor, interior - 73%
• Kitchen renovations - 72%
• Bathroom renovations - 68%
• Painting, exterior - 65%
• Flooring upgrades - 62%
• Window/door replacement - 57%
• Main floor family room addition - 51%
• Fireplace addition - 50%
• Basement renovation - 49%
• Furnace/heating system replacement - 48%

Most common renovations being done

• Main floor laundry room
• Ground floor home office
• Hardwood flooring upgrade in kitchen
• Whirlpool bath separate from shower
• Built-in kitchen appliances
• Addition of kitchen cooking island
• Non-neutral interior paint colours
• Smart house wiring
• Home theatre room
• Skylights

Expected Return (Range of Return)

• Exterior Paint (50% - 100%)
• Interior Paint (50% - 100%)
• Bathroom Renovation (75% - 100%)
• Kitchen Renovation (75% - 100%)
• Furnace/Heating System Upgrade (50% - 80%)
• Roof Shingle Replacement (50% - 80%)
• Basement Renovation (50% - 75%)
• Recreation Room Project (50% - 75%)
• Install a Fireplace (50% - 75%)
• Flooring Upgrade (50% - 75%)
• Window/Door Replacement (50% - 75%)
• Build a Deck (50% - 75%)
• Construct A Garage (50% - 75%)
• Install Central Air Conditioning (25% - 75%)
• Build a Fence (25% - 50%)
• Interlocking Paving (25% - 50%)
• Landscaping (25% - 50%)
• Asphalt Paving (20% - 50%)
• Add A Swimming Pool (10% - 40%)
• Install a Skylight (0% - 25%)

The Appraisal Institute of Canada has a useful worksheet that calculates potential return according to the above range. If you are planning to upgrade have a look.

Return on Investment on upgrades according to The National Association of the Remodeling Industry

Not surprisingly they are more optimistic than the Appraisers' return estimates, but the order of return remains much the same.

National Association of the Remodeling Industry

The Wall Street Journal suggests the following guidelines for best returns.

Painting the outside of your home enhances the curb appeal of your home relatively inexpensively and is an excellent investment bringing substantial ROI.

Kitchens and Bathrooms remodel is one of the best way to add value to the home and is repaid at the rate of 88% of the cost of a kitchen remodeling and 82% of the cost of remodeling a bathroom. (These are average American figures but are similar in Canada)

Additions of a room or garage is one of the more expensive improvements you can make, but the Return on investment (ROI) can be good. Up to 84% of the cost of an addition is recouped when a home is resold. But be warned: good design and execution are the only way to get your money back.

Additions of garages and extra rooms is subject to municipal by-laws, so check before you build.

Finishing Rooms such as a basement into more functional space can make the house more livable, but you won't necessarily get all your money back. On average you'll get a 75% return if you convert your attic into a bedroom and about 69% back if you refinish your basement.

Landscaping and Decks makes the yard look better and improves curb appeal. But don't go overboard on gardens. The deluxe landscaping job will simply not give the best return for your money. Adding a deck can make it more enjoyable, but you'll probably only get half of the cost when it comes time to sell.

Pools if you have enough space for one are one of the least rewarding upgrade you can add in terms of resale value. Adding a pool usually gives a bad return and has been known to reduce the appeal of a home.

Customized Changes that reflect your lifestyle closely do not offer best return.

Return on Investment (ROI) according to National Association of Realtors (American)

• Kitchen Remodeling 88%
• Adding Room/Garage 84%
• Bathroom Remodeling 82%
• Converting Attic 75%
• Refinishing Basement 69%

The Short Version

Important in any reno: don't eliminate options for future buyers when you remodel rooms.

The Toronto New Beach has shown that the above principles and percentages hold. Painting a tired room or stained woodwork gives high return on your investment, while expensive spectacular landscaping does not. Granite counter tops don't always pay back particularly if the colour is "wrong" for the new buyers. It is sometimes better to adjust selling price slightly and let the new owners buy the Granite if they want it rather than paying for the upgrade. Surprisingly, a finished basement is not always a bonus. Pot lights are desirable but the cost of installing them by the builder was high and are not paying back as well as if the installation costs had been more moderate. Because of the quality of the homes it is essential that upgrades be well done. Materials and finishes should be perceived as high quality. Brand new upgrades done with less desirable materials have been penalized. For example, while being a perfectly acceptable material, laminate flooring is sometimes perceived as less desirable, particularly in the upper levels.

Investing in fixing little things that are broken is usually well repaid. Fence gates that don't shut, torn window screens, rusty gas lines and meters and mailboxes, uneven paving stones are examples. Remember the Curb Appeal. Also essential, is fixing any leaks that might have come through sun decks, or water damage from overflowing bathtubs.

One upgrade we often recommend is upgrading the light fixtures. The original fixtures chosen by the builders can usually be improved upon [!!] and do not require a substantial investment. Another benefit of improving the light fixtures is making the home brighter.

Although exact figures stating the best return differ sometimes quite alot depending on who you ask the RELATIVE ORDER of return is much the same no matter who you ask.

To maximize return on investment for renovations and upgrades your priorities should be:

• Paint outside and inside
• Upgrade Kitchen and Bathrooms if they are dated or tired.
• Improve light fixtures
• Curb Appeal, make sure the first impression is great. Don't go overboard on Landscaping
• Fix what is obviously broken.
• Before doing any major work, design carefully and plan the execution in detail. Use good materials.
• Don't expect to get your money back on highly customized work.
• Don't eliminate options for the next owners when you upgrade.
• Remember if an upgrade will improve your standard of living and enjoyment it might be worth doing even if you don't get it back.