A few years ago, I staged a house for a single mom that had a gorgeous en-suite bathroom in the master bedroom. Beautiful tiles, nice new vanity, great shower including a trendy rain shower head. The en-suite was stunning. Who wouldn’t like that right? The cost of the reno, unfortunately, was equally as stunning. She upgraded her builder en-suite into this stunning retreat thinking that she would recoup the money back when she sold her home. The challenge was that the bathroom was in a townhouse situated in a starter neighbourhood i.e. singles, single parent families,young couples with young children. The cost of the ensuite was higher than what the norm was for the neighborhood. The double whammy however, was that the home owner had also spent a good chunk of money doing a very nice professional renovation in her basement. She had overspent on their reno for their starter home neighborhood. They didn’t recoup 100% of their renovation costs which left them very frustrated & discouraged about doing another house renovation.
There are many factors to take into consideration when you are renovating or upgrading a feature in your home. One of the main points to consider with any upgrade is to know your neighbourhood! Where do you live? What kind of home do you live in? Do you live in a trendy up and coming area where there are a lot of renovations going on ? Do you live in an area where there are a lot of houses for sale? Do you live in a neighbourhood that is a starter home neighbourhood? What’s the average price going for homes in your neighbourhood? How long does it typically take for a home to sell in your area. (That is called the average days on market.)
Walk and drive around your neighbourhood. See what type of renovations people are AND are NOT doing in your area. For example, it’s risky being the first house to spend thousands of dollars changing the front of your house when no one has done it yet. Let someone else risk their hard earned dollars.
2. Go To Open Houses In Your Area
Find out what people have done to their home, what they are asking and more importantly what the home sold for. Go to lots of open houses to get a clear picture of what’s going on in your hood. Don’t just go to one or two because the one or two that you visit may have over renovated or under renovated their home.
What is profit potential? The profit potential is the difference between what your home could be worth among similarly renovated homes in your neighborhood MINUS what your home is actually worth in its current condition LESS ALL costs associated with doing the reno.
The difference between the going price of a similarly renovated home in your neighborhood, minus the price of your home in its current condition LESS ALL renovation costs involved is your profit potential.
If you’re not sure what these prices would be, contact your realtor to get a REALISTIC price on your house in its current condition, and what SIMILAR RENOVATED HOMES IN SIMILAR NEIGHBORHOODS sell ford. The more realistic the prices, the more accurate your profit potential calculation will be. If either of these estimates are off, you could earn more than you expected, however the big downside could be is that you earned less than you expected or worse, you could be in a loss position.
In one of the Love It or List It show I saw, the homeowners were so excited that their newly renovated home had a profit of $140 000. HOWEVER, they spent $120,000 to earn that. You need to ask yourself the question, is it worth it to do all that work for $20,000? The ROI calculation would say no.
If you are going to all that effort of doing a renovation on your home with the view that one day you will be selling, you want to make sure that you have earned a significant profit potential while doing the reno.
4. Don’t “Under” Renovate Your Home
One house that was listed for a long time was a beautiful 4 season home situated on a lake. The property was in the $1 million + price range. The home owner had renovated the kitchen which was gorgeous. However, for some reason, probably financial, the homeowner installed laminate counters instead of granite, marble or corian. Buyers in this price range, with the location and size of the home, want and expect higher end finishings. Don’t cheap out. The potential owner will only take $$ off on the offer. And they may take off more $ than necessary just for the aggravation of having to redo the renovation.
If you don’t have the money to do the proper renovation that your neighbourhood commands, then wait
I walked through a home where the home owner had just installed laminate flooring in a hardwood floor neighbourhood. The floors were beautiful but they under renovated for their hood. They would definitely be able to recoup the renovation costs plus more in their area if they had installed hardwood. They may be able to get the money back when they sell, but they would definitely have been able to recoup significantly more if they had installed hardwood. In some cases, I’ve seen an under renovation backfire on the seller. In one townhouse, I saw the seller had installed himself cheap wide oak flooring. They had listed their house at $470K. Only a couple of weeks later, the house had two price drops and was listed at $415K.
One realtor asked me if his client should put in a new kitchen in their home before they list their property. The money they had to spend on the renovation was $15,000 including appliances. That doesn’t sound like a small amount but they were in a $750-800,000 neighbourhood where a $15,000 kitchen renovation would have looked cheap. The potential buyer again, would take $ off the offer taking into considering that they would need to do a kitchen reno.
If you can save money by doing a DIY by all means go ahead. WARNING: make sure the DIY looks like a professional job. If the DIY project doesn’t look professional, you could actually be devaluing the value of your home.
How do you know what to spend your renovation dollars on ?
Welcome! I’m Debi Collinson. Designer. Stager. Real Estate Investor. In 2006, at the request of a realtor, I staged my very first home. Staging houses was just starting to become popular. I watched every staging show on HGTV that I could find. I was very nervous staging my first house, but the sellers liked their newly redesigned home so much that they turned down an offer for full asking price. I went back to design school and have never looked back. Since 2006, I have been staging & designing spaces to make them look like they belong in a magazine page, and buying “fixer uppers” to fix up & either sell for a healthy profit or to rent them out. Sign up to receive my e-mails of how to make your home stunning and how to sell your house for top dollar!