How to Recoup your Renovation Costs

Lembu Listing from 4/2010

Renovating one’s home is always a dream for many people.  But also a source of many nightmares and headaches.  There’s not too much you can do to get around construction delays and your natural desire to always want more, but there are some things you can do to make sure your investment is financially sound and that you’ll be building equity as you throw tens of thousands of dollars into your renovation.

Figure Out Your Long Term Goals

When renovating, two of the goals that will be in tension will be the following:

1. making your home more comfortable for you
2. making sure you can get your money back when you sell.

You might love a stainless steel countertop, but what if no one would ever buy it from you?  They sure wouldn’t pay for your renovation cost–in fact, they may even ask to dock the price since they’d have to replace the harsh surface with a classic granite counter.  You might hate hardwood, but if you tile your entire house and you happen to live in a classic New England neighborhood, you might have to replace your flooring with hardwood just to get people to come and see your place when it’s on sale.

Generally whether you’re going to live in your home for five years or 30 years makes a big difference in how you decide on renovations. If you’re thinking 30 years or longer, resale value isn’t as big a deal since you’ll probably have to redo everything in 30 years anyway. In five years with minimal wear and tear, you’ll be selling whatever you renovated, and if done right, you can recoup as much as 80% of your cost for certain renovations.

Create a Gut Renovation Plan Based on Resale

For this section, I’m assuming you’re renovating with the priority of maintaining resale value and recouping as much of your costs of resale as possible.

Fine Homebuilding Kitchen Estimator

Fine Homebuilding Article on Kitchen Counter Costs

My rule of thumb with renovation levels is to stay at the quality of your neighborhood.  I.e., keep up with the Joneses.  If everyone in your neighborhood has laminate countertops, you might think twice about getting granite if you want to get your renovation money back on resale. If the quality of everyone’s units is really high, you also want to make sure to stay high yourself otherwise you lost the market on all the people that come to that neighborhood looking for nicely trimmed units. If everyone in your neighborhood has 700 sqft units with 8 foot accoustic-tiled ceilings, think twice about making your place the lone 2000 sqft unit with 10 foot ceilings and deep crown moldings. You won’t get your money back because people are nervous to buy the best property on the block.  If your place is in serious need of rehab, anotherway to go is to go cheap–that way you don’t spend that much money, and you can think of the cost of renovation as being reconciled by wear and tear over the five years that you’ll be using the home.  Then when you sell, someone like yourself will be buying the place–someone trying to buy something cheap that needs work.   But the drawback here is that you rule out all the typical home buyers in your neighborhood.  If you’re curious how much renovations cost, take a look on the web–companies like Fine Home Building Magazine have some great resources for pricing out a kitchen, as well as various articles on aspects of home renovation–as an example, check out this one on kitchen countertops, which shows that the cost of laminate countertops can be as little as 1/10 that of granite, labor included.

Report on Neighbor's Homes

One thing you can do when you need to decide how much to remodel is to ask your real estate agent for all the listings in your neighborhood in the past 5 years–that way you can browse photos and floorplans (if originally provided) to get a sense of what everyone else is doing. For example, in East Cambridge, most units have low ceilings, crooked floors, and are built adjacent to the sidewalks without any offset, and the prices, while still high to reflect convenience of commuting and proximity to amenities, are definitely lower than in say Cambridgeport or Agassiz. If you have a chance to completely redo a place in East Cambridge, you’d want to be careful to not over do it. Whereas in Agassiz, you’d probably be hard pressed to even find a contractor that would willingly install laminate countertops in any kitchen over there–she or he would definitely take a hit to their reputation if the public found out.  For a sample of all the listings in a neighborhood, click on the “Report” graphic left–this is all the publicly available information along with photos from the MLS.  This particular file has all the condos between 900-1100 sqft sold in Cambridgeport in the past two years.

Finally, make sure that the average person is going to appreciate the renovations that you choose to do. Historically, kitchens and added living space have always had high resale values. Some renovations, such as extensive landscaping or copper roofing, have tended to not return renovations costs as well. Check out Remodeling Magazine’s great site on Cost vs. Value for statistical information on the value of all types of renovations.

Get a Professionally Designed Plan and Stick to it!

When doing major renovating projects like a brand new bath or a kitchen or even flooring, stick to projects that you would do if you were going to gut renovate the entire unit. For example, say you bought a fixer-upper, and plan on doing renovations here and there over the years as you save up money to pay contractors. Hire a designer or architect to help you make a plan for the entire unit. There are some basic principles that any competent designer will be cognizant of, which will really help you resell properly in the future. These principles are important not only in making sure the layout elements of your renovation are done properly, but also so that the design throughout your home is consistent.   Examples of layout elements would be like a 42″ wide walkway which is always recommended between a kitchen island and everything else, or a 16″ distance from the center of your toilet to any side wall or cabinet for bathroom comfort.   Design consistency elements might include details such as the style of trimwork you use–in a 150 year-old Greek Revival home, you’d be much safer maintaining the strong window trims and restoring the exterior heavy cornice rather than just removing it and placing clapboard all the way to the roof line. These design details are important for proper use and timeless character.   Another example of consistency would be in having the same flooring throughout the unit, especially in small open-layout condos, which adds to an expansive feel. Sometimes people will add an engineered hand-hewn dark walnut flooring to a living room while leaving the original wide-pine floors intact in the adjacent dining room. While dark hand-hewn walnut flooring is nice, you’ll get better resale by matching the original pine flooring. There are many other principles a professional designer will guide you through, while still matching your goals, which is why it’s really important to hire a professional or at least consult one.

So make a plan, and throughout the years of renovating, stick to the plan and always keep checking your ideas against the plan.

Resources

There are many resources out there for making renovation decisions based on resale.

Take a look below:

Cost vs. Value Website–Boston Region, by Remodeling Magazine. This site has great information about resale, taken from surveys done across the country. The previous link was the local Boston site. You can also find national statistics at the National Level of the website.

Article on Cost vs. Value, 2009, by the National Association of REALTORS.

Ensure a Remodeling Project Pays Off, from Yahoo. This is a short checklist of things you can do to get your money back at resale.

If you have any questions, feel free to contact me or another broker–our contact info can be found at the Lembu Homepage. Good luck with your remodeling, and remember, use your broker for information, renovate smart, and use a plan!