Will I Recoup My Remodeling Investment?

“How much of my investment in this renovation will I recoup when I sell?” is a common question homeowners ask when considering a home improvement project.  There is no simple answer to this question, but it is possible to weigh various factors to help balance the construction investment against the value of a remodeled space. It’s about money, but it’s not all about money.

There are factors that influence the cost versus value discussion as you consider a investing in a new kitchen, remodeled bathroom, finished basement, family room, or addition to an existing home.

Project Type

Some project types have a better “return on investment” than others.  Finishing a basement, for example, may yield a better monetary return than most projects because it is adding usable area to the home without increasing the overall footprint.  Other project types may yield benefits in terms of functionality, aesthetics, and enjoyment without adding a measurable value to the home itself.

Remodeling magazine, a trade journal for contractors, publishes an annual Cost Versus Value report that projects the return on investment for a broad variety of project types.  While information like this can be valuable in the abstract, it only takes into account the “value” of a remodeling project as it relates to money.  Remodeling, however, is also about less concrete things: emotion, enjoyment, aesthetics, function, utility.  These things cannot be captured in a dollars-per-square-foot calculation.

While it is important to make logical and reasonable financial decisions, a home is not just a vehicle for investment but also the center of family.

Project Scope

During the design and planning process, it is important to consider multiple ways of meeting the functional and aesthetic goals of the project.  Generally, the larger the scope of the project (the more area, rooms or systems that are impacted), the higher the investment in construction cost.  It is said that the four most dangerous words in the remodeling arena are: “While we’re at it…”.  As the project scope is balanced against the project budget, it is necessary to maintain a clear understanding of the cost impact when scope is added to the project.

That said, it is often possible to find creative design solutions that address the underlying goals with an efficient project scope.  Collaboration with a good designer becomes a key piece of the puzzle.

Existing Conditions

Considering the starting point for the project can help address “value” questions.  What is the condition of the current space?  Are finishes in poor condition, “dated,” or just a different aesthetic than you prefer?  Are there underlying structural or systems issues that need to be addressed as part of the project?  Assessing these questions is part of the design and planning process.  The answers can help define the scope of the project and associated value impact when the project is complete.

Remodeling a newer space will tend to have a smaller “payback” than replacing finishes and fixtures that are nearing the end of their useful life.

Time Horizon

How long you intend to stay in the home can be a major determining factor as scope and finishes are balanced against the return on investment.  A relatively short time horizon will lead one to look at less invasive construction solutions because the investment in major interventions is less likely to be recouped.  The longer your time horizon, the more sense it makes to invest in a space that will bring your family enjoyment.

Home Value

When there is a short or moderate time horizon, home value becomes a more prominent component to the decision.  We often hear clients say that they don’t want to be the most expensive home on the block – justifying a large investment in remodeling for aesthetics only may not be a good decision in this case, but could be balanced by a need to update finishes or repair structural issues to maintain value.

In the case where you intend to stay in the home long-term, a major construction or remodeling investment is amortized over a longer period of time and takes a much smaller role in the decision.  Enjoyment of the home and legacy take a much more prominent role.

How to Decide

Fortunately, a qualified remodeling and construction company can help navigate this difficult landscape.  As part of the design process, a design+build company can come up with several scenarios and guide an informed decision-making process that mediates between the home’s value, your goals for the project, and construction realities.