Compared to conventional financial investments that rise and fall with regular frequency, housing has proven to be a relatively stable and sound investment that keeps up with inflation in most years and outpaces it in others.
Although few of us purchase a home strictly for its investment value, in practical terms it represents an asset that can pay high returns when it comes time to either refinance the mortgage or sell your home outright. Of course, a home that is well-maintained and offers up-to-date systems and amenities will have a higher value than a comparable home that is poorly maintained or lacking the conveniences and extra living space that today’s buyers want. Renovating, then, becomes the key to protecting and enhancing the investment value of your home, not to mention its many other benefits.
Canada Mortgage & Housing Corporation reports that B.C. homeowners will spend $4.3 billion in 2004 on maintaining and improving their homes. More than 65% of this activity will be in the Lower Mainland.
“What improvements will add the most value to my home?” is a frequent question. To answer, it is important to understand that renovating, and your home for that matter, is different from other investments that are primarily financial in nature. What’s unique about housing is that the “investor” or owner receives the immediate benefit of being able to occupy and enjoy their investment; i.e., live in it, all the while it is growing in value. Stocks and bonds don’t deliver on this aspect.
The longer you intend to stay in your home and will enjoy the new family room or whatever improvement you make, the more weight this factor contributes to your overall return on investment.
The other part of your investment return is the increase in resale value that the renovation adds to your home. Ultimately it is professional real estate appraisers who will decide the financial return of any renovation you do through the price he or she assigns to your home when you decide to refinance your mortgage or sell your home. The cold hard truth, however, is that real estate appraisals are more an art than an exacting science.
Your home’s price will largely depend on the prices that comparable homes recently sold for in your neighbourhood. The value assigned to the improvements you made to your home depends on a number of variables but depend heavily on the location of your home as well as its overall condition. Some renovation projects lift the value of a home by the entire cost of the renovation and sometimes by even more.
Despite the limitations of the appraisal process in allotting what you might consider fair value for all the improvements that you proudly made to your home since first moving in, there are certain rules that you should consider to increase the dollars you get back from your renovating investment.
Maintaining your home in good repair is the most critical of all investments that you can make to your home. The shape it’s in matters as much, if not more, than what other attributes your home might have.
The quality of the work you have done on your home is another factor that can’t be ignored, if you are looking to make a good investment. Shoddy workmanship, low-grade materials and inferior products will wipe out any value the renovation might have added to your home.
Renovate for yourself and your own family, not the next owner. It is a gamble to predict what the likes and dislikes of the next owner might be. Keep in mind, however, the more your tastes stray from the norm of most of your neighbors, the less likely you are to get maximum return from your improvements. Stay with styles, colors and features that have broad appeal.
Kitchens and bath renovations are the two most popular renovation projects year-in and year-out, no matter where you live. These two rooms carry the most weight when it comes time to sell your home. Attractive kitchens and baths fully outfitted with popular features will not only help sell your home faster, they also can drive the price a buyer is willing to pay for your home.
Extra space in the right place offers a high rate of return since existing homes tend to lack the roominess of new homes. New family rooms, larger master bedroom suites and eat-in kitchens are all examples of spaces that most buyers value highly.
Although it is difficult to put an exact price on the resale value of a particular renovation project, for most of us the real value of renovation is the comfort and pleasure it adds to the years we spend living in our home.