Author Topic: Is there a rule of thumb for ROI for home improvements?  (Read 1002 times)

StetsTerhune

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Is there a rule of thumb for ROI for home improvements?
« on: February 23, 2018, 09:01:48 AM »
I'm considering buying a house for the first time and have been trying to run some numbers on total cost of ownership to see if it makes sense financially.

I know it's a ridiculously general question, but if I expect to spend 10k updating the house (kitchen, flooring, etc.), what percentage of that 10k should I expect to recoup when I resell the place? 0%? 50%? 100%?

SwordGuy

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #1 on: February 23, 2018, 10:42:55 AM »
Pretty much none of it.

If it doesn't add sq footage, it's not likely to add much, if any, to the sales price.

It might make it faster to sell at the same price.

BrandNewPapa

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #2 on: February 23, 2018, 11:00:56 AM »
You will never get more out of a home improvement than what you put it in unless you are "flipping" a house.

Your personal home should not be thought of as an investment. Most people never make money on their personal homes after you consider interest, taxes, up keep, home improvement, etc.

If you want a real estate investment, look into purchasing investment properties (rental homes, development land, retail space, etc).


StetsTerhune

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #3 on: February 23, 2018, 11:14:21 AM »
You will never get more out of a home improvement than what you put it in unless you are "flipping" a house.

Your personal home should not be thought of as an investment. Most people never make money on their personal homes after you consider interest, taxes, up keep, home improvement, etc.

If you want a real estate investment, look into purchasing investment properties (rental homes, development land, retail space, etc).

Not looking to get more back than I put in, but it would be nice to get some of it back.

I'm not viewing it as an investment, but I want to go in with my eyes open in regards to all the ways it's going to cost me. Spending 10k on improvements to a house that I'm going to live in for (say) 5 years would mean an $170 a month cost over that period. Or less if I can get some of that back when I sell. Might tilt the balance of my decision, might not, just trying to figure out all the factors.

secondcor521

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #4 on: February 23, 2018, 11:54:23 AM »
My opinion / rules of thumb, worth what you paid for it:

1.  Never 100%, and probably never more than 80% at most.

2.  Percentage will be higher if you're buying the worst house on the block than if you're buying one of the better ones.  Could be close to 0% if you buy one of the best houses and improve it to be better than any house on the block.

3.  Interior/exterior painting and new carpeting or new flooring are probably a good bang for the buck.  I say this because that is what all the apartment landlords advertise when they have an apartment to rent.  Maybe it's because people tend to destroy carpet and paint when they rent and those are easy fixes.

4.  I have read that kitchen and bathroom updates tend to have high percentages.  I think this is especially true if you're upgrading quality of materials and the nicer materials are a checklist item; i.e., from laminate counters to concrete counters.  (Note I have laminate counters in my house but I'm not swayed much by current trends of wasting money.)  I think also you'd have to update most of the house to the next level of finishes in order for this to work.  In other words, don't spend $5K on a marble shower in the half bath and leave the master with a built-in fiberglass tub/shower combo; you won't get that back because people will see it as an obvious "partial" renovation.

5.  Bottom line, I would do the renovations because they matter to you and help you enjoy the property more while you live there; any money you make back is a bonus.  Oh, and one more thing, if you're thinking about doing some major work, I'd do it right when you move in; that way you get the greatest period of enjoyment out of your purchase.

Good luck!

robartsd

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #5 on: February 23, 2018, 12:30:52 PM »
In other words, don't spend $5K on a marble shower in the half bath and leave the master with a built-in fiberglass tub/shower combo; you won't get that back because people will see it as an obvious "partial" renovation.
I'm sure the "partial" renovation thing is real, but putting a shower into a half bath would upgrade it to a full bath which should improve home value (little to no credit for it being marble unless the home overall and the neighborhood make sense for that level of finish).

secondcor521

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #6 on: February 23, 2018, 01:26:18 PM »
In other words, don't spend $5K on a marble shower in the half bath and leave the master with a built-in fiberglass tub/shower combo; you won't get that back because people will see it as an obvious "partial" renovation.
I'm sure the "partial" renovation thing is real, but putting a shower into a half bath would upgrade it to a full bath which should improve home value (little to no credit for it being marble unless the home overall and the neighborhood make sense for that level of finish).

Whoops, you're right.  I was trying to emphasize the partiality of the renovation without noticing that my example produced an upgrade! :-)

aprilm

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #7 on: February 23, 2018, 02:42:14 PM »
You will never get more out of a home improvement than what you put it in unless you are "flipping" a house.

So what makes flipping different as far as getting a return from a reno?

StetsTerhune

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #8 on: February 24, 2018, 03:05:36 AM »
My opinion / rules of thumb, worth what you paid for it:

1.  Never 100%, and probably never more than 80% at most.

2.  Percentage will be higher if you're buying the worst house on the block than if you're buying one of the better ones.  Could be close to 0% if you buy one of the best houses and improve it to be better than any house on the block.

3.  Interior/exterior painting and new carpeting or new flooring are probably a good bang for the buck.  I say this because that is what all the apartment landlords advertise when they have an apartment to rent.  Maybe it's because people tend to destroy carpet and paint when they rent and those are easy fixes.

4.  I have read that kitchen and bathroom updates tend to have high percentages.  I think this is especially true if you're upgrading quality of materials and the nicer materials are a checklist item; i.e., from laminate counters to concrete counters.  (Note I have laminate counters in my house but I'm not swayed much by current trends of wasting money.)  I think also you'd have to update most of the house to the next level of finishes in order for this to work.  In other words, don't spend $5K on a marble shower in the half bath and leave the master with a built-in fiberglass tub/shower combo; you won't get that back because people will see it as an obvious "partial" renovation.

5.  Bottom line, I would do the renovations because they matter to you and help you enjoy the property more while you live there; any money you make back is a bonus.  Oh, and one more thing, if you're thinking about doing some major work, I'd do it right when you move in; that way you get the greatest period of enjoyment out of your purchase.

Good luck!

Thanks for the responses, everyone. Pretty much just what I was looking to know.

The area I'm looking in (a poor, medium size town), seems to have a pretty good stock of small houses that have never been updated since they were built in the 40's (in various states of upkeep). I did some more research, and it looks like there's a pretty good price difference between places with old carpeting, kitchens and baths (20-30k) and updated, but still not super nice houses (35-50k). I have no clear idea how much any of these places would take, but if the total costs are similar I would rather buy the cheaper place and put some work into it to make it what I want than have a place that is what someone else wants. Of course, there's also the inconvenience and work of having to actually do/have done various renovations, but that's a different matter.

mavendrill

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #9 on: February 24, 2018, 09:56:44 AM »
One note on a lot of interior work.  You probably won't get a great roi , dependant on market and circumstances of neighborhood on the cost of upgrades.

However, if you do the upgrades yourself, and with good quality work, you should return enough to pay yourself well for your time.  If you make little money, it could be the best work out there.

For example, my house was built in 1940, had two or three remodels w. additions.  Had laminate countertops on top of individually built original, and in excellent shape oak cabinets.  Laminate was going bad.  I pulled the laminate and replaced it with granite and butcher block, did almost everything myself.  The remodel took the lowest value part of our home, and upgraded it to match the general quality.  Contractor price for our area was $6500 ( big kitchen).  Estimated value added,~5000.  Cost to us in materials and hired labor $1625.  My time invested, 80 hours.  Pay per hour was better than any other work I'm doing.

So it can be a way to pay yourself for your labor, as well as potentially build a portfolio of your handyman expertise.  The value there is exceptional. 

There are some tasks that will pay for themselves to hire out.  But most of the time, the advantage of a remodel is in controlling the materials and the source of labor.

Abe

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #10 on: February 24, 2018, 10:07:29 AM »
I agree you will probably recoup a small fraction of the cost if you outsource the renovation. Easy things like replacing flooring/cabinetry/countertops can be done with a few friends to help. In that case, since the cost of labor is taken out, you may recoup some fraction of the materials cost. In general, however, the market value of the house will not increase. You may have more people who will consider the house and that may hasten the sale.

waltworks

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #11 on: February 25, 2018, 02:09:14 PM »
If you are fixing or updating mechanical or structural stuff, you can expect to get most/all of your money back at sale (ie new roof, new furnace, solar panels, bringing things up to code, etc).

Adding square footage will add some significant value, though not as much money as it costs you to build (unless you're moving the house into a different category of dwelling - making it into a duplex, adding a couple of bedrooms and bathrooms to a very small place, etc).

Otherwise, you should expect to top out getting back about 50% of what you put in, and that assumes you do bland/popular finishes. If you really like dark wood paneling on the ceiling or something, you might get *negative* money out of the "improvement", because a buyer will want to have it ripped out immediately.

-W

MayDay

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Re: Is there a rule of thumb for ROI for home improvements?
« Reply #12 on: February 25, 2018, 07:04:41 PM »
We just bought a 1950's house, and looked at a bunch of houses of similar age.

New kitchen cabinets: the truly new ones look good, but 5-10 year old particle board ones look Terrible compared to 1950 solid oak ones. Same with bathrooms- cheap renovation looked worse.

Flooring- same deal. Oooooold carpet looks bad. Newer stuff, some of it isso trendy it is turn off.

Winows: the house we picked has new vinyl windows, ugh. We'll probably be replacing them in 10-15 years. I'd have rather had the old original wood ones, but I realize most people would take new.

It's so complicated because it depends on the buyer. Some people want the new fresh look, but we saw the cheapest possible materials that wouldn't last. We went for the house with original flooring, kitchen, and baths, because fuck if it lasted 65 years, it'll probably last 50 more. Whereas the 5-10year old "improvements" frequently look like shit.

Can't please everyone. People on here talk about wood butcher block countertops being awesome and cheap, and I'd never buy a house with those (or I'd budget to replace when offering).