Renovations - Profitable or Not?

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Renovation projects are one way to increase the market value of a property, whether your personal residence or a rental property.  However, you should usually not undertake a renovation for that reason alone.

Major renovation projects are almost never a good idea if you're getting ready to sell the property.  While many improvements provide a significant return on investment over a number of years, the return on investment for various renovation projects due to immediate increased value are typically as follows:

• Kitchen or Bathroom remodels
        The typical return on investment is 65 to 75 percent.
  
• Home Office
        A home office addition or conversion can return 60 to 70 percent on your investment because more people, whether owners or tenants, are working from home these days, either as a telecommuter or in their own business.
  
• Finished Basement
        A finished basement can provide  play space for the kids as well as extra storage space for items that can't be left in an unfinished basement or in the garage.  This can bring a return of up to 50 percent.
  
• Energy Efficiency Improvements
        Installing a central air conditioning system or replacing window s with more energy-efficient ones typically provides a return on investment of only 30 to 40 percent.  The return for a heating system upgrade is a little better, typically returning as high as 50 percent.  New highly-efficient heating and cooling systems are excellent long-term investments because they can often pay for themselves within a few years due to energy savings.
  
• Cosmetic Improvements
        Cosmetic improvements generally make more sense where a near-term sale is contemplated because they are usually lower cost, provide an immediate obvious visual improvement, and can often be han dled by the owner himself. 

In general, all deferred maintenance items should always be taken care of before putting the property up for sale.  A sticking front door, a patio door off its track, a cracked window, a yard in serious need of mowing, and similar items will cause some potential buyers to eliminate the property from consideration and encourage other potential buyers to make low-ball offers.

Long-Term Considerations
      The fact that a particular major renovation is not profitable if immediate sale of the property is being contemplated doesn't mean that it should not be considered if the property will be held for a number of years.
      For the owner-occupied property, one must consider the enjoyment potential and other personal benefits.
      For the rental property, major improvements may actually return a significant profit over the long-term.

The above topics are discussed in much more depth
  on our members' Renovations - Profitable or Not? page.

Non-Members' Homepage