While surfing the web a few days ago I came across an interesting article at Bankrate.com about the 6 worst home fixes for the money. Most of these weren’t surprising: home office remodel, backup power generator, and upscale garage addition all made the list. Two of them stood out at me, though: bathroom addition and sunroom addition also made the list. All six of these on average give the owner a return of less than 55% of what they paid.
The sunroom addition stood out to me because it’s something that we have considered down the road for our house. The Dining room area is just a little smaller than we would like, so our thinking has been that adding a sunroom would allow for a bigger kitchen, bigger dining room, and more square footage. The sunroom making it on this list made me take a step back and realize that not all square footage is going to for sure boost the value of the home equivalent (or above) the cost of the renovation/addition.
Another thing that stood out to me was the bathroom addition. Adding a bathroom sounds like a good investment, but it can be pricey, which is why people on average do not even break even on a bathroom addition.
When it comes to renovations and additions there are a few factors to consider:
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Does it make sense for the house? – Turning three bedrooms into two just to make the rooms bigger may limit potential buyers who plan on having more than one kid. Conversely, adding a 1/2 bath to a house with only one bathroom could make a lot of sense.
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Does it make sense for the neighborhood? – If the most expensive house on the block is $200k, you might not want to sink a ton of money into renovations/additions that would price your house well above the average.
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Return on your investment – Just like the article on Bankrate said, pouring money into something like an upscale garage will limit the potential pool of buyers so much that you will essentially be forced to take a loss.
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How much longer will you own the house? – Some people have settled down and know they will be (or at least want to be) in their house for decades to come. Customizing the house – even if it doesn’t necessarily make financial sense – may be justifiable in this situation. On the other hand, if you are planning on selling in five years, it makes much more sense to tailor the house to potential buyers.
As a new home owner, I have some pretty normal ideas for things I want to do to our house: hardwood floors, renovated bathroom and kitchen, privacy fence, etc. I also have some pretty outlandish ideas that likely will never come to be, which recently has been an addition on the back of the house that allows room for a master bedroom with a master bath and walk-in closets.
Instead of just “going for it” and signing up for any and all renovations (and maybe even an addition or two), it’s important to consider the return on investment.
What are your thoughts on renovations and additions? Which do you think are the best investments?
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Photo by johncarljohnson
FrugalRules says
I think the practicality and return on investment are the two biggest factors. We have a few things we want to do with or house and are dealing with this now. The shower in the master bath needs to be redone and we’re debating between just doing that (which we CAN afford) or doing the whole bathroom (which will be a stretch).
RFIndependence says
Interesting data. I would think if you can later convert your sun room in an additional room or avoid/delay a costly move it could be worth the money. For me the best investment is the one that will bring extra rental income, fixing your basement or attic into a new unit. Also insulation because you save on heating.
DC @ Young Adult Money says
@RFIndependence I agree! That’s why we choose the house we did. We don’t need the extra basement space, so to have rental income coming from it is huge!
JustinatTheFrugalPath says
Sometimes you have to add in how much better your life will be because of the renovation. If you have one bathroom with 3 people, the convenience of the 2nd bathroom may be well worth the money that is lost. So not all returns need to be financial for a remodel to make sense.
SenseofCents says
I think you sould think about how long you will live there and how much value you’ll get out of it.
OneSmartDollar says
Great point on “Does it fit in the neighborhood”. Too many times people will do awesome renovations in a neighborhood even though they will never see a return on the cost spent. Just because you make your home worth $400,000 doesn’t mean it will sell for that when every other house around you is worth $250,000.
DC @ Young Adult Money says
@OneSmartDollar Definitely agree. It makes me wonder about my own neighborhood where there seems to be a wide range of home values…wondering how people will do when they decide to sell.
Ugifter says
I definitely agree that it depends on the situation. I would say the same for your place. If you’re not going to overshadow your neighbourhood and it will add decent square footage percentage wise, I’d go for it. Just note that sunrooms are often poorly built and sometimes that’s a warning flag for buyers.
Yes, bathrooms are expensive to add (depending on situation), but in the right situation they are totally worthwhile! Like you said, the jump from one to two is huge. I know in Calgary, a 2 bed apartment with 1 bathroom is at least 50K cheaper than a 2 bath, for example.
DC @ Young Adult Money says
@Ugifter The second bath is big, but what about a 3rd or 4th? I think they have diminishing returns unless they serve specific purposes.
TotalMortgage says
A lot of people don’t think about over pricing their home for the area when the start renovating. Great tip and something people should be more aware of! Having the best house in the neighborhood can make it harder to sell later on.
DC @ Young Adult Money says
@TotalMortgage Definitely something for home owners to think about!
Money Life and More says
We want to renovate our bathrooms and our kitchen. Not sure if we’re going to go through with them all soon but it would definitely help the rental income down the road and eventual resale value if we don’t hold on to it.
TacklingOurDebt says
Great topic! When we feel like we may not move for a while it is easy to begin spending money on upgrades to make things even nicer and more comfortable. But you are right. Do things that add value and do not upgrade over what the neighbourhood is worth.
I’ve seen large homes built in our city on the same block as tiny bungalows that are not that pretty.
The large homes are around $1.7 mill but they are next door to a home that is only around $500K. Will they ever sell for full asking price?
DC @ Young Adult Money says
@TacklingOurDebt That’s the big question. Definitely makes me think about who our potential sellers our. In all honesty, if you own a starter home, it will take a lot of money to turn it into a home that you can raise a family of 4+ in, and then you have to ask whether the neighborhood is right for that sort of investment.
Jon H says
The other aspect that should be considered is the value of the market. If you live in a relatively cheap market than putting 10k into the house wont necessarily multiply.
In my market we were able to buy our house for relatively cheap which is great but for every improvement we do the upside is not as much as if we lived in a higher priced market where we would have had to pay more for the house.
DC @ Young Adult Money says
@Jon H Good points!
Eyesonthedollar says
I really want a sunroom. You just broke my heart! We did get estimates at one point but it was ridiculous. We don’t plan on moving, so maybe someday.
DC @ Young Adult Money says
@Eyesonthedollar I want a sunroom too! I think it really depends on the house as far as return on investment. If it was $50k to add a sunroom on to our $200k house, I don’t think we’d see all 50k of that back.
CanadianBudgetB says
I’ll be doing the kitchen, bathrooms, basement, floors, baseboards, new front door.. you name it, I’m doing it because thee house needs a lift. Our house is not the most expensive on our street or neighbourhood by far as some reach close to a million. Comparables tell us to keep it simple which we likely will do. One thing I did read was if you know you want to move don’t do the major renovations until closer to the time you will leave. If you put in a new kitchen in 2012 and move in 2017 that kitchen might not be as popular and you might not get what you think out of it. Lots to think about. Sounds like you will be just as busy as me. Mr.CBB
Amandaking says
Adding a sunroom is in fact, a great idea. A sunroom is a highly versatile place which can act as a sitting room, can double up as a spare bedroom when you have guests for the night, or can be converted into a greenhouse. If you have a beautifully landscaped lawn, it can give a breathtaking view of the outdoors where you can sit and enjoy yourself! A
<a href=”http://www.championwindow.com/patiorooms/”>sunroom additione</a>
can increase your house’s resale value especially if it’s a four-season sunroom and is attractively designed. This post caught my eye because we plan to add a sunroom to our deck. We don’t intend to move and with a big garden out in the front, a sunroom is just what we had been missing out on!
Amandaking says
Adding a sunroom is in fact, a great idea. A sunroom is a highly versatile place which can act as a sitting room, can double up as a spare bedroom when you have guests for the night, or can be converted into a greenhouse. If you have a beautifully landscaped lawn, it can give a breathtaking view of the outdoors where you can sit and enjoy yourself! A sunroom addition can increase your house’s resale value especially if it’s a four-season sunroom and is attractively designed. This post caught my eye because we plan to add a sunroom to our deck. We don’t intend to move and with a big garden out in the front, a sunroom is just what we had been missing out on!
http://www.championwindow.com/patiorooms/