John Lusink: Will Home Renovations Always Provide Me a Return on Investment?

As many of us know, as residential property values in many parts of Canada have continued to rise in the past several years, the popularity for homeowners to add value to their homes by doing renovations has also risen. Taking advantage of a strong real estate market can be a good thing, but the question when it comes to renovating or remodeling one’s home is this: even in the best of real estate markets, is it a given that home renovations will provide a return on investment (“ROI”)? Put another way, can it be comfortably assumed that the increase in home value will be greater than the amount of money the homeowner puts into his or her home renovation? Those are important questions to ask.

Unfortunately, a rule of thumb that I always have when it comes to most aspects of the real estate industry is that almost nothing can be “comfortably assumed”. There are risks to nearly every move one makes in the industry, regardless of how strong the market is, and, yes, that goes for home renovations too. Now my purpose in introducing this word of caution is not to discourage those who may be considering a home renovation. Rather, it’s to emphasize the importance of carefully deliberating points such as the potential cost of renovation, what areas of the home are being renovated, and the timing of the project in relation to a potential sale of the house. All these play fundamentally into whether or not you as a homeowner will enjoy a financial return on investment after all the hard work you or your contractor put in to completing a renovation.

However, before even beginning to consider whether certain home renovation projects will be more intelligent to take on than others, I always recommend that homeowners consider whether their homes require any specific repairs to be done. If so, repairs should be undertaken prior to beginning any sort of renovation projects, as repairs will most likely yield immediate value for a homeowner. Things like cracked kitchen tiles, faulty electrical areas or a loose drainage pipe – these are all repairs that should be addressed first and foremost.

So, if you’ve fixed all needed repairs in your home, you can now consider what areas of your house to concentrate on as far as potential renovations. As many homeowners know, almost universally the most important rooms of any house – and the most frequently used rooms of any house – are the kitchen and the bathrooms. For those who are selling their homes and are looking to increase their home’s market appeal through renovation work, there is no doubt that tackling a kitchen and/ or bathroom renovation is well worth the effort and monetary cost. These are rooms that potential buyers pay a considerable amount of attention to, which means that kitchen and bathroom renovations oftentimes yield a 100% ROI for homeowners. However, as a caveat, these are rooms that are often the most expensive to renovate, especially if we are speaking about renovations that are more than just cosmetic.

The importance of going green is something that I often see overlooked by those who are renovating their home, which is why I regularly try to stress the point to my clients. When completing a renovation, remember how significant green technology can be, both for the environment, as well as for your pocket book. Things like replacing old kitchen appliances with green Energy Star appliances, or replacing windows with more energy efficient ones – these are all improvements that will not only help reduce your monthly energy bill, they can also yield some tax breaks too.

Sometimes in addition to renovating a room or area of a home, homeowners will also consider adding on to a home, which is a topic that I would like to end the article on. There is no doubt that adding on to a home can make the property more appealing – it adds to the total square footage, it can make the property not only larger, but also feel larger, and it can correct design issues with a home, such as a small master bedroom or a master bedroom without an on-suite. However, when considering the question of whether or not to add on to one’s existing property, I always urge homeowners to consider return on investment. Completing an add-on is usually an extremely cost-intensive project, and when considering an add-on from a return on investment perspective, the positive potential of a large project like an add-on may start to fade. Put a little more bluntly, the increase in a home’s value from an add-on rarely is greater than or even equals the cost of completing the add-on. It’s for this reason why I often recommend that homeowners stick with renovations and repairs.

In the end, even in a strong real estate cycle such as the one we’re in right now, I urge homeowners to carefully consider the numbers when beginning to consider a renovation to their home. If the numbers are not adding up or if it proves to be too expensive to do the kind of renovation you would like, perhaps it’s not a project that should be taken on at this point in time.