Do I have this right regarding reno versus home value? (appraised, investment)
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Ok, I've been thinking a lot about renovations versus increasing your home value. Tell me if I have this right.
Renovation is about individual costs. Say I want to renovate the kitchen. It would cost x amount of money to do. If I want a new furnace, it would cost y amount of money.
The value of your home is not based on any individual renovation. It is based on the totality of what your renovations do to the house.
So, say I buy a house that is falling apart at the seams. Suppose I want to install a top of the line Jacuzzi that is worth $10K. Because the rest of the house is still a piece of cow poop, the top of the line Jacuzzi would do very little to increase the value of the home.
But if I begin to renovate the rest of the house. At some point, the totality of the renovations would effectively increase the overall value of the house by x amount.
Now, the trick is doing a balancing act to see at what point the overall increase in value of the house is more than the renovations combined. So, if I don't reach this point, my total renovation cost would still exceed the overall increase in home value, thus making the renovations not worth it.
Those sound like the mental calculations of a flipper. If it truely is your home and you are doing it to make yourself more comfortable then the only calculation needed is "can I afford it?"
With flippers, and fix and hold buyers, I talk about ROI - return on investment. It's a percentage of total cost Higher for kitchen, baths and decks, lower for carpet & paint and near zero for a new roof and furnace. Those are meant to function. It's only a problem when they don't.
........So, say I buy a house that is falling apart at the seams. ......
What I don't see in your calculation is what you have purchased the falling apart house for. If you buy it for $100,000 less than houses sell for in that neighborhood and put is less than $100,000 to renovate it including selling costs, there will be some profit in there
If you buy it for $40,000 less than a house sells for in that neighborhood and you put in $100,000 of renovations, you might end up with a lovely house that you are going to lose a lot of money on.
The value of your home is not based on any individual renovation.
It is based on the totality of what your renovations do to the house...
...and in the context of what OTHER similar homes in the area have done.
eg: If all the other 40yo tract houses have remodeled kitchens and are appraised at $X...
if you home does not have that remodeled kitchen it will be worth less.
Quote:
So, say I buy a house that is falling apart at the seams...
...and which is appraised at well below the OTHER similar homes in the area...
then it would probably be worthwhile to restore it to the level of similar homes in the area.
---
But if/when you go overboard in quality/style in comparison to OTHER similar homes in the area
then you've crossed the line from restoring a deficiency into something else altogether.
If you intend to stay put for 20 or more years... so be it.
But if you expect to sell anytime soon don't count on recovering your outlay.
What do the other houses in the area look like? Are they all renovated? Or are they all older and in need of updates? Would your house be the "most" renovated? What does a renoed house sell for in this area?
You never want to renovate more than your location unless you are in an actively gentrifying zone. Learned this the hard way.
People get back the money for the following...New bathrooms, new kitchen (white cabinets are the thing now), hardwood and finished basements.
Things people might like but won't necessarily pay more for....Paver driveways, fences, hot tubs, second kitchen in basement, fine carpentry like crown molding and wainscoting. And finishes that are higher than the neighborhood commands.
Pools are emotional. They can turn a buyer off or on. People will pay a premium for a pool that is in good working condition if it strikes that emotion with them, but no one should put in a pool to increase the value.
Things people should care about but may overlook as long as they work...the age of the roof and HVAC systems
I don't think it's about the renovations adding up into something, at least around here. But the more done the better
Ok, I've been thinking a lot about renovations versus increasing your home value. Tell me if I have this right.
Renovation is about individual costs. Say I want to renovate the kitchen. It would cost x amount of money to do. If I want a new furnace, it would cost y amount of money.
The value of your home is not based on any individual renovation. It is based on the totality of what your renovations do to the house.
So, say I buy a house that is falling apart at the seams. Suppose I want to install a top of the line Jacuzzi that is worth $10K. Because the rest of the house is still a piece of cow poop, the top of the line Jacuzzi would do very little to increase the value of the home.
But if I begin to renovate the rest of the house. At some point, the totality of the renovations would effectively increase the overall value of the house by x amount.
Now, the trick is doing a balancing act to see at what point the overall increase in value of the house is more than the renovations combined. So, if I don't reach this point, my total renovation cost would still exceed the overall increase in home value, thus making the renovations not worth it.
Do I have this right?
Are you renovating to live in it or sell it?
I did remodels in my personal houses and I didn't care as much as to cost or value. It's going to raise the value simply because it's a improvement. I did it for our enjoyment not because it brought 5k in value
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