Before we get into the ins and outs of how to avoid overcapitalizing, the first question you need to answer is:
How long do you plan to own this home?
If the answer is 1 – 5 years, then any renovation decisions should be made with future resale value in mind. On the flip side, if you plan to be in this home for 10+ years, then you can go all out. Add or change anything you want since you will get to enjoy the full benefit of any renovations you are about to complete.
If you are unsure of your timeframe, take a cautious approach and renovate with future buyers in mind.
Here are some more key points to consider…
Understand your market.
To some extent, it’s important to fit in with the houses around you. There is no point installing a top-of-the-line kitchen in an area where a middle-of-the-line type is more the norm. In a lower-priced area, buyers may not have the budget to pay a far higher price to reflect your high-end renovation. They also won’t want to pay more for your home than they can logically justify using recent local sales.
The top end of your potential value range is somewhat limited by the houses around you.
Visit local open homes and see what well-renovated houses in your area look like. Try and find examples that you can use as inspiration.
A high-quality renovation will absolutely add value. But keep in mind that buyers still choose homes largely based on their intangible features, like sun aspect, views, and location.
Don’t chase perfection.
It might be ideal if you could extend your bedroom wall and add a bathroom, but as soon as you start moving walls around and adding plumbing, the cost of any renovation will sky-rocket.
Avoid the upgrade trap.
Renovations involve lots of decisions. You have to choose items like faucet fittings, cabinets, tiles, carpet colors, lighting. Every choice comes with dozens, if not hundreds of options, all varying in price. It’s easy to fall into the trap of constantly choosing the slightly nicer, slightly more expensive option, which always looks nicer on paper.
The cost difference on each item might be small but these changes can add up significantly across an entire renovation.
At the same time, always choosing the cheapest option is unlikely to work out well either. Choose higher-quality options for regular use fixtures like bathroom faucets. But make sure you are going for timeless quality, not just trendy looks that could fall out of fashion quickly.
If you upgrade one item, try to downgrade another where you can to help balance the budget.
Break down the cost.
Or better still, work out the per-day cost of your desired change.
Let’s say you want to upgrade your kitchen and you are choosing between a granite or laminate counter but the granite option costs $5,000 more. If you plan to stay in the home for 3 years, then the granite option will essentially cost you an extra $4.56 per day ($5,000 / 1,095 days). More if you are borrowing the money to renovate.
Are you happy to pay that extra amount for your desired upgrade?
Note: The higher quality countertop should also add value to your home, but there’s no guarantee any buyer will pay more for a feature that you were attracted to. And a slightly higher price down the road won’t help you pay the bill in the meantime.
Let’s talk it over.
If selling is a possibility, then choosing which parts of your home to renovate can make a massive difference to your end result. Sadly, many owners spend money on changes they don’t have to, chewing up energy, time and finances in the process.
I often meet with owners who are 3 – 18 months out from a potential sale to discuss what changes will add max value. It’s all part of my service. Call me today to book your free consultation.