Bringing Return on Your Home Renovation Investment

So you want to buy a fixer-upper?!  Unless you are Chip or JoAnna Gaines, I would caution you to look carefully at what it’s going to take to make your vision a reality.  I’m not suggesting you have to purchase the cookie-cutter home in the perfect neighborhood; I like a little funky from time to time, but some things aren’t fixable without a lot of cash. Not to mention the fact that the $30,000 renovation project typically turns into a $45,000 project in the end.

Understand that not all projects are going to add dollar for dollar value to your home.  While some projects, like kitchen and bathroom remodels increase the value of your home, putting an expensive pool in your backyard may not bring a significant return on your investment. Here are a few reasonable home renovation projects that may pay off when it comes time to sell:

  • Paint your kitchen cabinets
  • Add crown molding
  • Spruce up your curb appeal with color (Paint, flowers, creative landscaping, etc)
  • Update the exterior light fixtures
  • Dress up your bathrooms with new light fixtures and hardware on the cabinets
  • Give the dull walls a fresh coat of paint


The National Association of Realtors® (NAR) and the National Association of the Remodeling Industry (NARI) collaborate each year to produce their “Remodeling Impact Report.”  The report is based on survey data from NARI professional remodelers and homeowners to report on the costs, return on investment and the joy factor gained through home remodeling projects. It is a great reference for anyone who is considering investing in a home renovation. This year’s report proposes replacing or refinishing wood floors as one of the least expensive interior remodeling tasks with the highest percentage of return on your investment when it comes time to sell.

Keep in mind that the return on your improvement efforts has to be supported by the neighborhood you live in.  It’s the old rule of real estate… location, location, location.  Not to take the wind out of your sails, but be cautious to not over-improve for your area. Unless it’s your forever home — then, who cares!  Do what makes you happy.

If you are going to fix someone’s mess or maybe you’re planning a renovation, be sure to consult with a skilled professional ahead of time. It’s important to have a well thought out plan. Ask others who have done similar remodels what they wish they’d done differently. Learning from others mistakes is a lot less costly. There are things I wish I’d thought of when we remodeled our home; like making the tankless water heater available to all of the faucets in our master bathroom, not just the bathtub… but I was just focused on my luxurious bathtub and forgot about how nice it would have been to be able to wash my face with instant hot water in the sink. It’s the little things that you might not think about that could have been done all at the same time, if you would have just thought to ask.

Once you have a plan, now you’ll start interviewing those who will facilitate the job. Beware of the cheapest bids. If it sounds too good to be true, it just might be. Get references and check out the quality of workmanship.  Lining up your contractors and trades-persons to do the work as soon as you close escrow and before you move in is ideal.  Be sure you have made your selections, confirmed availability of the product choices and, most importantly, have coordinated the scheduling of the work to be done. In what order will the work be completed — who goes first?  You’ll want to consult with a design specialist if you’re not 100% certain on your plan.

If you’re planning a major renovation, may I suggest hiring an architect!  They have vision for what can be done without making mistakes that you’ll regret later on.  They’ll also help you see the forest for the trees when it comes to cost.  The last thing you want to do is run out of money half way through your project.  Communication is also critical to a stress-free renovation.  Delays happen when there’s a breakdown in communication.

Planning to do the remodeling on your own? Keep in mind that the county building department will require a permit on most of your renovations.  Oh sure, there are plenty of home owners who have put in a hot water heater or built a fence without the necessary permits.  Most of the time the county doesn’t know about your small projects.  But when it comes time for a larger job, like a room addition or structural modification, the county building inspector will invite themselves to make their way around your home, looking at everything you’ve done.  They may be coming out to check out your new kitchen remodel that you’ve hired a licensed contractor to complete, and while they’re there they notice that your bathrooms haven’t yet been upgraded with the required water conserving plumbing fixtures, or maybe that you have an added bonus room that they were unaware of.  You can see how this can quickly become a can of worms.  Bottom line is that it’s a good idea to check with the county building department in advance of starting a project to see what’s required.  They may ask about the other renovations to your home that were done previously that the county didn’t get an invitation to check out.  

I’m always amazed at the homes that were once 1,600 square feet, but now are 2,400 square feet and the county knows nothing about the addition.  Yes, this does happen… No, it’s not good.   As long as the workmanship was done skillfully, you may just have to pay a fine but remember, the county may also want their increased taxes too. When you make an improvement to your home, the county will reassess the value of your home to include the new improvement. Otherwise, your taxes can only go up 2% a year. As a Realtor, not a financial advisor, I can’t advise you on these types of issues but suffice it to say; the government wants their money for the improvement to your home. Even if you didn’t do the improvement, it’s now your home and might end up being your problem. 

This is just another reason why homeowners must tell the buyer whether or not the improvements they’ve done were completed with the necessary permits and up to building code standards.  It’s one of the many disclosures you receive when buying a home.  Your Realtor will review all of these disclosures with you during the early stages of the escrow process.  Just because it’s an “as is” sale, don’t forget the importance of having the home inspected.  You may uncover hidden issues that the seller was unaware of or has lived with for so long that they’ve forgotten to disclose. 

Finally, and probably most importantly, where is the money coming from to do all of these projects.  Sometimes it makes more sense to add these costs on top of your existing loan instead of using up all of your savings on renovation projects.  Ask your lender about the FHA 203(k) loan program, to see if you qualify.  This type of loan allows you to borrow between $5,000 – $35,000 for improvements to your new home.  Fix-up loans like this require that you use a contractor from their approved list, which will need to be factored into your budget.  Of course, if you have cash you can make tremendous progress with your sweat equity — that is if you know what you’re doing!   

Three keys to a successful fixer-upper home renovation:
1) Have a well thought plan to consider the cost of repairs and upgrades;
2) Don’t over-improve for the neighborhood;
3) Be sure to have the home thoroughly inspected before you start.  It’ll eliminate a lot of the surprises that can cause delays and problems down the road.

It takes vision to see past a home’s imperfections while still being realistic.  Everybody wants the nice home in a good neighborhood, but not every home has what it takes to get it there.  If you’re an HGTV enthusiast or following any of the top interior designers on Instagram, you’ll undoubtedly have enough ideas to make your head spin. Just be sure you do your research and start with a plan in mind.

 


Amid the Noise” is a Real Estate Blog by Carol Kellogg & Kellogg Family Real Estate Team of Lyon Real Estate

 

Carol Kellogg is a Realtor living in Fair Oaks, California. She started her career with Lyon Real Estate in 1992. Over the past 25 years she has sold hundreds of homes, focusing on the importance of the customer experience. Representing both buyers and sellers, her goal is to provide quality service with a personal touch. Whether it’s a first-time buyer or seller, or a seasoned veteran in the world of real estate, Carol brings an element of experience and confidence that her clients appreciate.

 

#1 Realtor in the Lyon Real Estate Fair Oaks Offices 1998 – 2002.
Masters Club Outstanding Life Member
The Realty Alliance National Sales Award
C. Mike Messina Award for Leadership & Professionalism
Former Senior Vice President of Lyon Real Estate

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