Should You Invest in Home Renovations?
Since the advent of HGTV, home improvement has had an enormous surge in popularity. Everyone wants to make over their kitchens, bathrooms, and beyond (and everyone thinks it'll be a tidy little weekend job with lots of high-five-ing and cheerful swings of the sledgehammer).
One thing to consider before you go shopping for that perfect backsplash tile is whether your improvements will pay dividends when you eventually turn around to sell your home. It's important to know your margins before dropping tens of thousands on materials and labor.
First and foremost, you should know the market value of your home today, as-is. The best way to determine that is to review the most recent sales prices for comparable homes. Ideally you can find homes right in your own neighborhood and/or school district that are similarly-sized, with similar finishes and features (2 garage spaces, backyard with patio, finished basement, on a similarly-busy street, etc). Most homeowners have a tough time being objective in these comparisons though. We all see our homes through rose-colored glasses (I'm not talking to YOU of course, Cheryl. Your home is a special snowflake. I'm talking to everyone else.). That's just human nature -- we all have emotional attachments to our homes and see them as an expression of ourselves, and I include myself in that pool. I have a big, weird crush on my own condo.
Anyway, a realtor can be a great help when doing this exercise, as he or she can provide an objective assessment of your home's value. We also have the easiest, most efficient access to comps, which means you'll get a comprehensive output of data.
Once you have a handle on the value of your home today, I recommend compiling a list of the improvements you'd ideally want to make, and there's some valuable data out there to help you understand which upgrades will deliver the most bang for your buck. Check out this article from HGTV for a deeper dive, but here's the bottom line: minor kitchen and bath remodels and upgrades to your curb appeal tend to result in the biggest ROI.
I know, you're probably already hurtling towards Home Depot to pick out bathroom tile, but hold the phone. There's another, more crucial exercise you must first perform: taking stock of the functional systems in your home. If you know you have a leaky roof, your HVAC system is at the end of its natural life, or your window seals are shot, it might be hard for a buyer to get past those risks, no matter how hot your bathroom may look. Your chances of recouping your cosmetic investment may quickly dwindle if buyers know there are tens of thousands in functional repairs waiting for them after closing. As disappointing as it might feel, make sure you check those boxes first, and that may mean your backsplash dreams are delayed for awhile.
If and when your home is in great working order, you can proceed with defining your cosmetic wish list.
Then it's time to go back to your trusty sales data again (for the love of God, when do we get to pick tile?!!?) This time, look for recently-sold comps with as many of your desired upgrades as possible. Just like we did when determining the current value of your home, you're looking for properties of similar size, with similar features, in the same neighborhood or school district, etc.). You're also looking for the most recent sales you can find, as your local real estate market is always in flux. A sale from a year ago isn't a great barometer for the value of that same property today.
Once you have a handle on how much the improved homes are selling for, you can finally see the potential upside to the updates you're considering. Then it's up to you to determine how much it's worth investing in your home and where you want to draw the line. If you're considering $50,000 worth of improvements and improved comps are closing for $100,000 more than your estimated value today, then you're in good shape. If that's not the case, then you should proceed with caution.
That being said, if the improvements you're considering don't appear to pay for themselves on the back end, you can still make the decision to proceed. If you're planning to be in your home long-term, and the improvements will add to your quality of life and enjoyment of your property, then godspeed, Cheryl! Get on with your bad self and spring for the Carrara marble and seven body sprayers. Creating a sanctuary that speaks to who you are and how you live is important -- this is where you spend the majority of your time, after all.
I'll also add that it's important to understand the true cost of the improvements you want to make. At the outset of a renovation project, it's easy to lowball and assume you can achieve the look you want at the bare minimum cost. But home improvement projects can (and often do) go over budget in a hurry. Once the train has left the station and your kitchen is in shambles, you're stuck paying more than you bargained for to finish the job -- you don't have a choice. So as you're figuring your margins at the beginning, try to be as realistic as possible and enlist professionals to provide rough estimates or actual quotes where possible.
If you're in Chicago, I'm happy to point you in the direction of a reputable contractor; my office keeps a database of vendors that our clients have used and loved for any job you can imagine: floor refinishing, smoke mitigation, interior design, windows and doors, painting, etc.
Good luck, and I wish you many high-fives and happy sledgehammer swings.