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Getting the Biggest Bang for your Home Renovation Bucks when Selling

A home is the biggest investment most people will ever make in their lifetime. With the Canadian real estate market steadily rising over the past decade, so too have the use of HELOCs (home equity lines of credit) – HELOCs have grown an astonishing 170% over the past decade. One of the main uses is home renovations. With many baby boomers looking to downsize, lets look at renovations that provide the highest benefit-to-cost ratio when selling your house.

Pros

Before starting any major renovation it’s important to think about the needs of buyers. If younger families are moving into your area, think of renovations that will appeal to them like a backyard deck. It’s equally important to use your renovation budget wisely – some renovations provide a higher benefit-to-cost ratio than others.

Kitchens and bathrooms tend to provide the highest Return on Investment (ROI), while other investments like in-ground swimming pools and skylights generally aren’t so appealing. For a full list of renovations and their ROI check out: Style At Home: Return on renovation costs: How much will you get back?

Home renovations can be expensive – not only do you have to pay for materials, you also have to pay for skilled labour. If you’re handyman you can save yourself a bundle doing the renovations yourself. If you aren’t so handy, retail stores like Home Depot offer classes and YouTube has plenty helpful videos from experienced professionals. It’s probably a good idea to leave the trades to the experts, but you save a lot of money by doing simple renovations yourself (just be sure to do a good job or you could decrease the value of your house).

In a buyer’s market, a major renovation like a new kitchen can make your house really stand out. If you’ve neglected repairs over the years, an updated kitchen, a new bathroom and a fresh coat of paint can be the difference between selling your house at a bargain “as is” and getting a decent price. For resale condos, renovations benefit greatly as there is almost always a glut of them on the market. If your condo has updates, i.e. kitchen, bathroom, molding, wood floors, fireplace, etc., this would certainly make your condo much more desirable.

Cons

In a seller’s market, it usually isn’t worth undertaking major renovations. Your house will more than likely attract multiple offers regardless of a new kitchen. If a lot of people are topping up houses in your area (rebuilding bungalows as “McMansions”) major renovations are probably not a wise investment. Renovations are all about the latest trends – if you install crown molding today and plan to sell in five years, will it still look in good shape and be in fashion? You’re lucky to break even with most investments, so it’s important to choose sensibly.

Some renovations like a new roof or furnace may need to get done right away if they’re in bad shape, but may not provide the best curbside appeal. It’s important to understand that you can over-renovate your house. For example, a $75,000 bathroom probably doesn’t belong in a $300,000 bungalow in the suburbs.

Final Thoughts

If you’re planning to sell your house major renovations like adding an in-law basement apartment can add significant value to your property – if done right. It’s vital to look at the needs of buyers in your neighbourhood and do the renovations that provide the highest ROI. Have you ever undertaken any major home renovations yourself? Please share with us your experiences.

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About the AuthorSean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University.

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About the author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.

{ 6 comments… add one }
  • Ben June 18, 2012, 9:19 am

    By the referenced article’s own admission, renovations have a negative ROI. You always get something less than 100% of your money back. Like a negative GIC – guaranteed to lose money.

  • Trevor Thompson June 18, 2012, 5:53 pm

    If you do the work yourself, it is possible to squeeze out a small profit.
    More often it is work required to sell the home in the first place.

  • Sean Cooper June 19, 2012, 10:18 am

    I think if your house needs a lot of work it’s worth putting in the renovations dollars to get it out of the “junker” category. You have to spend your money wisely though.

  • Steve June 19, 2012, 10:39 am

    Sean makes a good point about the type of familes buying in your neighborhood.

    If you’re selling s starter home, first time buyers want sparkle. Make it look as cosmetically good as possible. They’re probably coming from a junkie appartment so make the house look as new and up to date as possible will get top dollar from star-struck newbies. They rarely pay attention to the age of the furnance, roof, driveway, windows, etc.

    If you’re selling a home for young or teenager families, decks, rec rooms, basement bedrooms, main floor or 2nd floor laundry will draw their attention. Energy efficient upgrades might also catch their eye.

    If you’re selling in an older community that targets empty nesters or retireees, they rarely care about what the latest fashion, and look at cosmetic stuff as easy to fix. They are sticklers for the bones of the house. Cracks in foundation, old windows, old furnance, roof, etc. They’ve replaced one or two of these in their lives and they don’t enjoy replacing them.

  • Steve @ Grocery Alerts Canada June 19, 2012, 10:55 pm

    One tip I have is to never over capitalize. This is important in certain neighbourhoods.

    Also, be wary of the latest trend – I am selling a vessel sink I thought rocked!

  • Al June 3, 2013, 11:08 pm

    My first home was a condo in Halifax during professional school. I bought it just before enrolling in school and sold it about 4.5 years later when graduating.

    I purchased the 450 sq ft condo in 2007 for $134,500 and sold for $154,500 in 2011. The condo was close to school and I had a prime -0.9% 40 year mortgage which was the same dollar as paying rent that alone made it attractive for me. I knew I’d never fully own the place but I never intended to.

    I tackled a bathroom renovation and a kitchen renovation in the summer of 2008. And some minor stuff along the way

    The bathroom renovation I put in a new bathtub (white old one as beige and remaining fixtures were white). I also put in a new tile tub surround and tile floor complete with underlay. Total cost was about $800

    Kitchen I bought new appliances (fridge, stove, dishwasher, microwave above stove) as the current ones were really really old, but I waited for them to go on sale at sears and bought them for 40% off. Cost $2200.

    Kitchen cabinets I bought new mdf doors and hardware for and painted them approx $600 and added a back splash for about $125.

    I had some other miscellaneous costs such as electrical and trim work – electrical I hired an electrician for & hired a plumber to hook up the new bath tub that cost approx $1,500.

    So for slightly over 5K I raised the standard of living in that condo, but this was in the mix of the worst recession ever seen and I was green behind the ears with renovating and was basically just looking to not throw all my rent money away.

    I did end up making a profit after the sale of the condo of approx 10K more than I put into renovations and cost, plus my realtor fees and lawyers fees (another almost 10K) were tax deductible since I moved to take a new job.

    My new venture is a 1250 sq bungalow purchased in Jan 2012 for 125K – 20K less than market appraised value as it was a foreclosure and January when nobody buys houses. We put 20% down to avoid CMHC fees and secured a 2.99% mortgage. We’ve begun by starting to finish the basement, and doing some cosmetic work on the main floor and yard (both a mess due to previous owners neglect).

    This was by far the worst house in the neighborhood despite only being 6 years old. We’ve started making efficiency upgrades to the house as well after a few $325 power bills (electric heat).

    I offer the following advice on “retail real estate investing” – buying homes you’re planning on living in fixing some stuff and selling them:

    1) Know your time lines – how long are you going to live in this house? how long does it take to complete certain projects? what can you work away at slowly and leave unfinished for a few weeks / months? how long with an energy efficient upgrade until you get your money back?

    2) Getting a great mortgage is almost better than getting a great home. Mortgage discharge fees can be an absolute pain and can kill any potential profits.

    3) Have a plan of what you’d like to see for renos & figure out an approximate cost for them, but don’t over improve for the neighborhood. Several houses in my neighborhood are in the 200-300K range so I’m safe.

    4) Look for ways to reduce costs – DIY, government upgrade grants, trading services with contractors, searching the internet for better prices, buying stuff on sale you’ll need later, register as a contractor at local building supply stores to get discounts

    5) Don’t incur debt to renovate, instead do it out of existing cash flow / windfalls and pay for it all on a rewards based credit card, then exchange the rewards for gift cards to home improvement stores or towards your mortgage.

    6) Be realistic about profits – enjoying your house has a value as well. And think of the alternative of renting a similar place and how much you’d pay for that and get no equity.

    Keep in mind your end goal with all the renovating to begin with. Are you trying to sell your house? Improve it for your own use? Reach a higher selling price? In reality a good renovation suits all of those needs.

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