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Renovations That Give You a Return on Your Investment

Q. So What will give me a High Return on Investment?


There is no question that renovations can be a complex and time-consuming. That is why it is important that renovations are looked at on an individual basis to determine the best areas to invest in to ensure you get the highest return when you sell your home. You - as a homeowner - want to ensure that any improvement you make to your home will add as much value as possible.

According to the Appraisal Institute of Canada, the renovations that provide the best return on resale are typically cosmetic improvements, such as painting and decorating, where there is limited capital outlay. However, when it comes to cosmetic renovations, homeowners should take caution to not overly personalize the renovations because it could adversely affect the property's function or market appeal to the general public.

Also very important to note is the actual quality of work completed. The savvy home purchaser now notices when work is not done well. Whether or not you are planning to sell your home, you should ensure that the work done is satisfactory, adheres to the local building codes and is done to completion.

When homeowners decide to renovate, they usually take one of two approaches. Some homeowners decide to renovate simply because it is something they've personally wanted, for example a pool or a skylight in the bathroom, which doesn't typically yield high return on investment. Other homeowners take the “investor” approach - perhaps replacing old countertops, cabinets or the roof, for the specific purpose of increasing the overall market value of their home.

In either case, it is important to be aware that you might not fully recoup your investment. Just because you've invested $50,000 in renovations does not necessarily mean that your house will be worth $50,000+ more. Only a few renovations will return your full investment, most will not. This is one of the most difficult things to believe, but experienced appraisers know this to be true.

The amount that your renovations will return to you once you sell depends on several factors. These may include: the location of the property (i.e. rural or urban), direction of the housing market or the value of other homes in your neighbourhood. In some markets you could earn more than your renovation dollars spent.

For example, in some areas a rear deck will add more value than the amount you spent building it - however, in most areas, it will not. That's why it is important to understand the demographics, needs, and wants of specific home purchasers in your immediate area when planning renovations.

It is also important to note that the longer you wait to sell after your initial renovations have been completed, the less you may get as a return. The renovations depreciate over time and trends come and go, so the item you renovated five years ago might no longer look up-to-date in the eyes of the prospective buyer.

Another thing to keep in mind if you undertake extensive renovations is that you might over-build for your specific area. Prospective homebuyers might not be willing to pay for all the renovations completed based on the location of your property or the prices of comparable properties in the immediate area.

Based on the Appraisal Institute of Canada's latest Home Renovation Survey and the informed opinion of Canada's professional fee appraisers, the home renovations with the highest, lowest, and average return potential are:

Poor Return on Investment

  • Skylight installation (0% - 25%)
  • Swimming pool (0% - 25%)
  • Whirlpool Tub installation (0% - 50%)
  • Interlocking Brick walkways (25% - 50%)
  • Home Theatre (25% - 50%)
  • Building a Fence (25% - 50%)
  • Paving with asphalt (25% - 50%)
  • Landscaping (25% - 50%)
Medium Return on Investment
  • Central Air installation (25% - 75%)
  • Roof Shingle Replacement (25% - 75%)
  • Deck Building (25% - 75%)
  • Paving with Concrete (25% - 75%)
  • Basement Renovation (50% - 75%)
  • Construct A Garage (50% - 75%)
  • Recreation Room (50% - 75%)
  • Fireplace installation (50% - 75%)
  • Flooring upgrade (50% - 75%)
  • Heating System upgrade (50% - 75%)
  • Windows and Door replacement (50% - 75%)
  • Garage Construction (50% - 75%)
High Return on Investment
  • Bathroom Renovation (75% - 100%)
  • Kitchen Renovation (75% - 100%)
  • Exterior Paint (50% - 100%)
  • Interior Paint (50% - 100%)

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' (conservative) return estimates, but the order of return remains much the same.

Add a Bathroom
Add a Fireplace
Kitchen Renovation (minor)
Kitchen Renovation (major)
Bathroom Renovation
Add a Skylight
New Siding
Add Insulation
New Roof
Greenhouse Addition
Replace Windows /Doors
Add a Swimming Pool

Average Cost

Resale Recovery
200% plus

National Association of the Remodeling Industry

Ontario Contractors Return on investment table

HGTV ROI article written by Mike Holmes, about Where to put your Reno Dollars.

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. Don't go overboard.
  • Improve light fixtures. If you intend to keep a fixture when you move it is better to replace it before showing, that way a potential buyer will not feel ripped off and resentful that he cannot have the light.
  • 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 investing in it even if you don't get it all back.
Six Common Home Renos and Whether They Are Right for You:
  1. Kitchens: Just a few improvements in the kitchen can pay a high return. Paint, re-flooring, sanding/staining cabinets or even replacing dated lighting and cabinetry handles are just a few of the low costs changes that can make a huge difference in appearance. If you are planning a large reno for your kitchen, this is always money well spent as there continues to be an increased focus on the kitchen as the entertainment hub of the home.
  2. Bathrooms: Adding an extra bathroom with good quality finish and workmanship can pay for itself. According to studies and expert appraiser opinions, you could return between 65% and 75% of your costs of remodeling a full bathroom, and around 65% of the costs of adding a NEW full bath. If you can't afford a full upgrade - consider just re-facing the cabinetry and updating the faucets and showerhead to obtain best return on your investment.
  3. Decks: This may be one of the most cost-efficient ways to add some square footage to your house. Especially since most people have really taken to bringing the outdoors in! Large double patio doors that can be opened to allow this to occur can be very attractive in some areas of the country where they experience milder spring and fall seasons. Deck additions generally recoup 85% of their value.
  4. Paint: A quick paint job has consistently been a positive investment for return. As long as the colours are kept classic and in with current colour trends - you can't go wrong. A fresh coat of paint takes years off the home's appearance. It is inexpensive and a simple colour change can make a huge difference in how a room feels to a prospective buyer.
  5. Landscaping: Curb appeal is always important when enticing prospective homeowners to venture into your home. This could be as simple as adding a privacy hedge, or a well-maintained flower bed. Do keep in mind that a green, healthy, weed-free lawn is always a great way to show curb appeal and pride of ownership prior to the prospective buyer even entering your home.
  6. Swimming Pools: It's agreed upon by most real estate experts that a swimming pool has no resale value at all. In fact, some homebuyers prefer to fill in the pool once they buy it to avoid the expensive upkeep and the fear of liability. And, many people even refuse to take on that added responsibility.
Overall, homeowners need to think strategically as to what they want personally or when they will be selling, then decide what will have the most positive outcome for their own situation. With this information, you can make a more educated, wiser decision.

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