Making money on your home-improvement investments

Shopping is not always rational. The bigger the purchase, the less rational you may become. For example, my vehicle purchases have always hinged on the cup holders.

When it comes to buying a home, few people remain rational. We 'fall in love' with a house. Love is not rational. If it were, married people would never bicker, because they would rationally have chosen someone who didn't spill stuff to the point where cup holders became a huge lifestyle priority.

And Loving It

The more loveable you make your home, the more cash you'll get when it comes time to sell.

But which upgrades will give you the best return on your renovation dollar? The answer depends on whether you're in a seller's market, or a buyer's market.

For example, if you renovate your kitchen, you can hope to get 70% of your investment back in a flat cycle (a buyer's market). In a hot seller's market, the return is likely in the area of 100%. If your home is in a high-end neighbourhood, an upscale kitchen remodel can bring up to 120% return on your investment.

Currently, many urban areas are in a seller's cycle. There are too few desirable properties to accommodate all the eager buyers clutching their pre-approved loans.

Here are some recently quoted percentages on specific upgrades, culled from various Canadian sources:

Return on Home Improvement Investments

Taste Test

The question you should ask yourself when pondering renovations for re-sale is this, "What is the first renovation a buyer would undertake on this house as soon as she buys it?"

If a buyer wouldn't rush to install, say, a reptile room, then completing such an improvement won't deliver a great re-sale return.

If you're renovating to maximize the sale price of your home, target your renovations toward the typical buyer for your area. If you're not sure what upgrades are desirable to the average buyer, contact a real estate agent for information on trends and valuations in your area.

Got Money?

You can renovate in one fell swoop, hiring a professional renovator and investing large dollops of cash. Or you can choose the DIY approach, taking your time, doing some of the work yourself, and enjoying the upgrades while you still live in the house.

If you use the DIY method, experts recommend that you spend one to two percent of the value of your home each year on maintenance and improvements.

Trend for Yourself

There are trends in every industry, and real estate has more than its share. For instance, the popularity of the 'great room' seems to be waning, in favour of the following lifestyle renovations:

• The Extended Family Suite - As more young adults take longer to leave the family home, and as more aging parents move in with their adult children, secondary suites (especially on the ground floor for older people) are gaining popularity.
• The Home Office - More than 15% of Canadian families have at least one family member operating a business from home. A well-lit, efficient home office space pre-wired for computer networking is a plus for many buyers.
• The Private Theatre - Gaining rapidly in popularity is the electronic rumpus room complete with built-in cabinetry, concealed wiring, and soundproofing.
• Efficiency Factors - As fuel prices continue to rise, many buyers investigate energy efficiency in prospective properties. If you're renovating anyway, consider energy improvements while everything is torn up (i.e. install radiant heating under new flooring, or add rigid insulation to exterior walls while you're upgrading the siding.)
• Maintenance Factors - Discriminating buyers are looking for low maintenance materials that minimize regular upkeep. Outside, this means vinyl, aluminium or brick cladding that doesn't require fresh paint every couple of years, and energy efficient windows which can be cleaned from inside the house.

Remember, a bad remodel can actually decrease your property value. Get the job done well or you're just paying for your own education.