Thursday, May 29, 2014

Cost Versus Value - A Delicate Balance

As a homeowner you're probably curious what projects provide you with the best return on your investment (ROI). Or maybe you want to spruce up your home to help with its resale.

As an architectural professional, questions I'm often asked are: What are my options? Is this project worth the time? Is it worth the money?

Fortunately, there's information out there to help you understand what the costs and ROI will be for typical renovation projects.  It's often surprising to learn bigger is not often better.

Let's take a look at a kitchen renovation as an example.

A major kitchen remodel may cost you anywhere between $40K to $60K. A minor kitchen remodel will be in the price range of $10K to $20K, maximum. If you, the homeowner, are thinking the major kitchen remodel is going to give you a 100% ROI you're sorely mistaken. Same goes for the smaller kitchen remodel.

The ROI for the major kitchen remodel tops out at 74.2% and the ROI for the smaller kitchen makeover is 82.7%.  So if you're looking to add value to your home for resale, fixing up the kitchen may not be the best project to undertake.

Here's what I mean.

Let's say you're thinking of selling your home in the next year or two and your home renovation budget is $15K. Your goal is to make your home sell faster, since the time it spends on the market just eats into your profit margin.  Your second criteria is you want as high a ROI as possible.

What projects should you consider? 

For a budget of $15K, here are a couple of scenarios you may want to consider to help improve your home's curb appeal, saleability, and the ROI you will experience.


Scenario 1
  • Entry Door Replacement (steel) 
    • Your cost: $1,162 
    • Your return: $1,122 
    • Your ROI: 96.6% 
  • Wooden Deck Addition
    • Your cost: $9,539
    • Your return: $8,334
    • Your ROI: 87.4%
  • Garage Door Replacement
    • Your cost: $1,534
    • Your return: $1,283
    • Your ROI: 83.7%
This first scenario will cost you $12,235 and your ROI will be $10,739.  The difference is a loss of $1,496.

Scenario 2

If you want to switch things up a bit, consider what this scenario offers:

  • Entry Door Replacement (steel) 
    • Your cost: $1,162 
    • Your return: $1,122 
    • Your ROI: 96.6% 
  • Window Replacement (vinyl)
    • Your cost: $9,978
    • Your return: $7,857
    • Your ROI: 78.7%
  • Garage Door Replacement
    • Your cost: $1,534
    • Your return: $1,283
    • Your ROI: 83.7%
This second scenario will cost you $12,674 and your ROI will be $10,262.  The difference is a loss of $2,412.

Both home improvement scenarios are below the $15K margin, which is a good thing, because you give yourself some wiggle room for any unforeseen complications with the work.

Scenario 3

Let's compare these two scenarios to a bathroom remodel:
  •  Bathroom Remodel
    • Your cost: $16,128
    • Your return: $11,688
    • Your ROI: 72.5%
The bathroom remodel will cost you $16,128 and your ROI will be $11,688.  The difference is a loss of $4,440.

When we compare the bathroom remodel to Scenario 1 and Scenario 2, the bathroom remodel is over budget and provides you with much less return.  Not to mention the disruption and inconvenience you will encounter while the project is underway.

The conclusion is: pick your projects wisely. If you have a limited budget for your home improvements and want to maximize your return on your investment, going big is not always better.
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