Will I Get My Money Back out of my House When I Make Improvements?

Home Improvements: Will I get my Investment Back? 

A few times a month I get a phone call that starts off something like this:

Bob:  Hi Steve, This is Bob Jones.  We have been in out house for 3 years and we are thinking of.....

Steve:  Moving? 

Bob:  No.  Redoing the kitchen.   

Steve:  Aha.  Well that will be fun! 

Bob:  Yes, it sure will.  I can hardly wait.  But first we want to make sure we are going to get our money back our if we have to move in the next 2 years. 

......Ok.  The call continues.  And it could have been anything, kitchen, bath, basement, addition, whatever.  But the answer is not as cut and dry as people want to hear.  They WANT me to tell them, yeah - sure, no problem.  But chances are good at this point that I am the one they will call when they sell and I want to be sure that...

1. ...I have given good advice
2. ...they aren't upside down in improvements
3. ...they know what to expect

So, basically I tell all of the Bob's out there that you need to consider many things and I even ask some questions to make sure he is thinking of the full picture.  I have learned throughout the years that many times when I get these calls the homeowner already knows he is going to be moving at some point and he wants to make sure his house is sell-able and competitive.

• Do you think you will be moving in the next two years?
  If the homeowner already knows they are moving, they may want to make big improvements that are not really necessary.  Its one thing to replace worn out old & stained carpet.  That would be a good investment.  It will help sell your home overall.  Will you get every penny back?  Probably not every - buyers just plain old expect to have decent carpet in a home. 
  But here's another scenario - rip out a perfect good kitchen just to have granite counters, new floors and shiny new appliances.  Sometimes worth it, sometimes, not.  Read on....
  
• So, Bob, Why do you want to make the improvements?   Are they purely cosmetic or do things need to be done.... 
  I truly believe that there is a value that you can place on the enjoyment of your added improvements.  And I think its very important for homeowners to understand this.  Many don't.  Some think a dollar spentis a dollar coming back at them.  Back to the granite in the kitchen above.  Or this could even be about finishing a basement.  If you are going to spend $30,000 to finish your basement, you probably are not going to be able to get $30,000 more for your home.  If you are going to be in your home for 1 year, will that difference be worth it to you.  How about in 3 years?  Or 5?  Chances are, if people know they are leaving soon, they will not make a huge cosmetic enhancement once they really think this through.  When they know they will be staying in their home 3+ years, they will begin to see that there is a type of non-monetary value in enjoying their new improvements, and they are more accepting of what their return will be.    
  
  
• The homeowner has decided they are adding their granite kitchen and stone floors and they plan to be in the house 3 - 5 years.  They think its worth the investment when they consider time added value.  Now they ask more specifically - how much value can I add and not overprice myself out of my neighborhood?  You talk more, and they are directly inquiring about the project itself.  The nitty gritties.  He is being smart.  He wants to make sure his home is still sell-able.  We discuss such things as the percentage of homes in his neighborhood that have sold in the last few months and what is in them.  Slab vs tile granite.  Stone vs hardwood floors.  Black appliances vs all stainless steel.  Its always nice to have the nicest home on the block.  Sure can be nice to live in.  But it isn't always the easiest one to sell when it comes time to.    It is very important that homeowners understand the risk of making their home too nice and pricing themselves out of their own neighborhood. 
  
  But with that said, currently in the Denver area, re-coup of kitchen remodels is at about 80%.  This is definitely one of the top areas that you can add a lot of value and really enjoy great enhancements. I can not say this enough though, upgrades to your kitchen do far more than effect the value of your home - they can dramatically enhance the overall appeal of you home.  The kitchen is often the soul of a home.  I have seen kitchens make or break deals, many times.  This is also an area I would recommend that you consult with a decorator or home improvement professional for planning purposes, even if you are going to do the work yourself. 
  
  
• Especially in this changing market, homes that do have great improvements will sell faster than homes needing major improvements.  If there are 50 homes on the market, all equally nice and 10 have a finished basement - those 10 are most likely going to sell faster - as long as you listen to your agent and still price it correctly. 
  
  
• Back to paint and let's add carpet to the mix.  Before considering larger jobs, don't forget or underestimate the value of paint and carpet.  Both are amazing at adding value and can dramatically changing a home.  Investors have been aware of these two gems forever! 
  
  
• Outdoor improvements - Building a Deck or Patio: In Colorado we spend so much time outdoors that a deck or patio is almost a necessity.  The question is deck, patio or either at all?  Both can be very beautiful and always make a great addition to the home.  Sometimes you may not have a choice as is the case with walk out basements.  Decks may require more maintenance but for many they are preferred.  Resale value of a deck or patio is around 73%.  However, living without one may not be as enjoyable.
  
  
• Roofs: Do you need a new roof?  Is the roof damaged?  Of course, the home's roof is critical.  If your roof has been damaged check with your insurance company to see if a claim can repair of replace the roof or its damaged areas.  If the roof is older or just seems worn out then you may want to look into replacement.  If you are trying to sell, I'm sure that the buyer will have an inspection that will discover this anyway.  Roof replacement can be costly and will return around 75%, however roof leaks can cause much bigger problems.
  
  
• Windows: Windows don't have to be very old before needing repair of replacement. If your windows are damaged or no longer efficient then replacement may be a consideration.  If the windows are newer and failing, have a professional window contractor out to determine the cause and recommend the next step.  Sometimes the windows may be under warranty or at times, a class action law suit that may help with replacement.  Window replacement can also be costly and will return around 85%.
  
  
• Bathroom remodel: Are your bathrooms too small or outdated?  Maybe you just need one more.  In any case, bathrooms can also be costly but worth the investment.  Most bathroom remodel jobs should return around 80%.
  

In the end the decision is Bob's  but I have provided him with valuable food for thought.  I do want him to improve his house, but I want him to do it smart.  I want him to love his improvements.  I want him to be happy with what he decides to do.  When it comes time to sell, I want him to call me and if he listened to all of the points I made, we will be able to price it correctly, get a good return on his investment and he won't have to worry about wanting to over-price it just to get his money back.  We won't even have to go there in our conversation. 

Recoup statistics used in this blog can be found here and are based on the Rocky Mountain Region.