From the Wall Street Journal:
Renovations That Pay Off
By TERRI CULLEN
My brother-in-law Brian and his wife Colleen are in the process of renovating their home in northern New Jersey, for both practical and aesthetic reasons. They have changes in mind they think will make their home a nicer place to live, but they also plan on selling in the not-too-distant future and know their home needs improvements.
They plan on tackling two major projects: an overhaul of the master bathroom and adding a front porch, with some accompanying improvements to the landscaping of their front yard. The total price tag, they estimate, will be around $35,000. Beyond the normal anxieties of a renovation — potential cost overruns, dust and debris and workers in your home — Brian and Colleen wonder if the improvements they have in mind will pay for themselves when the time comes to sell. Perhaps they’ll make a little extra. Or perhaps they won’t be able to recoup all of the investment.
Brian and Colleen’s first project is a much-needed overhaul of the master bathroom. It’s frozen in time circa the Johnson administration — black and pink tile, anyone? — with fixtures and cabinets that are weathered and in need of replacement. They estimate that updating the room with new tile, fixtures and cabinetry will cost about $15,000, but feel the project is a must for presenting the house to a buyer.
Are they right? In an effort to find out, I consulted the “2005 Cost vs. Value Report,” an annual guide published by Remodeling magazine and the National Association of Realtors that estimates what various home projects will pay back at resale. (The construction-cost estimates include labor, material, sub-trades, and contractor overhead and profit.)
the biggest return on renovations is the bathroom, then kitchen, then after that it doesn’t really matter unless you’re doing major structural work (building out a den, etc.)
These seem to be very modest projects, $15,000 to bring the master bathroom from the 60’s to the present and $12,000 to give the house curb appeal. I’d say these are projects worth doing even if you are only going to live in the house 5 years because they’ll enhance your own quality of life enough to make them worthwhile.
I’d really like to know how much those calculations of return on investments over the past few years took into consideration the exploding house market. Houses went up in price without anything done to them at all.
Anyone have info on the methodology?
I think the proposed renovations won’t pay for themselves, but will add value and improve quality of life. So I don’t know what to advise. But it’s incorrect to look at a house as only an investment: it becomes an investment when you sell (and one learns whether there’s a gain or loss), but while living in your house, you’re essentially renting from yourself, in a sense, and this is essentially an act of consuming or spending, so in one sense the renovations are like an expensive ($35K) stroll in the mall.