Investing in Home Renovation

SEE ALSO >>> Individual Tax

In 2020, Americans will spend about $325 billion on home improvements and repairs, according to Harvard’s Joint Center for Housing Studies. While that’s essentially flat compared with 2019, it remains an impressive sum. If you’re considering a remodeling project, you’re probably also wondering what you can expect to recoup from your investment. The potential resale value of, say, a kitchen or bath redo often is one consideration when deciding how to allocate your renovation budget.

Top Projects

When it comes to renovation projects that return most of their investment, garage door replacements top the list, according to Remodeling magazine’s 2019 Cost vs. Value Report. On average, homeowners recouped nearly all — 97.5% — of their investments in garage doors. In second place, at 94.9%, were manufactured stone veneers. Other renovations that had resale values of at least 75% were minor kitchen remodels (that is, those with an average cost of about $22,507), wood deck additions and siding replacements.

The generally higher returns on exterior improvements reflect the power of curb appeal in attracting buyers’ interest. In contrast, a major kitchen remodel returns an average of 59.7% of money invested. One reason, according to the report, is that a fully remodeled kitchen may be so customized that it fails to garner broad appeal among potential buyers.

Of course, all projects should be considered in light of the particular circumstances. For instance, adding a bathroom to an older home with a single bathroom likely will provide a greater return than adding one to a home that already has multiple bathrooms. Also, keep in mind that remodeling a home so extensively that it moves beyond the price range of the surrounding neighborhood can make it more difficult to recoup your investment.

Basics Matter

It’s true that highly visible remodeling projects, like granite countertops or deluxe showers, tend to attract attention. But ensuring that basic plumbing, roofing and other systems are in good working order also is critical in attracting buyers.

Few potential homeowners have the time or money to undertake significant repairs just to make their new home livable. Moreover, questions about one of these systems may prompt potential buyers to wonder what other challenges await them.

Renovation Management

Any renovation requires an outlay of time, money and energy. To gain the most from your investment:

Plan. Gather information on materials and products, the likely timeline, and potential contractors. Get a rough idea of the budget. Decide which ideas are must-haves and which are nice-to-haves.

Consider a general contractor. Taking on this job yourself may initially appear to be a money saver. Unless you have construction experience, however, you’re likely to spend more time and money doing it yourself than if you hire a general contractor to oversee the renovation.

Get multiple quotes. Ask to see portfolios of their work, or even better, visit a few projects — including a few that are underway. Look into whether the sites appear to be well managed.

Draw up a written agreement. This should include the scope of the work to be done as well as the estimated cost, timeline and payment schedule. Having these in writing can minimize future disagreements.

Allow for contingencies. Recognize that projects can go off track for reasons out of the contractor’s control, such as unseasonable weather. Account for this in your budgeting and scheduling.

Track your expenditures. Investments you make in improvements to your home generally can be added to your cost basis and reduce any capital gains tax liability when you sell the home, so be sure to carefully track them.

Many factors to consider

Of course, resale value is just one element to consider when deciding which remodeling projects are needed. If a project will provide a great deal of enjoyment and fits within your budget, that may be reason enough to go ahead.

Need Additional Information?

If you need more information, please contact us so we can connect you with one of our CPA advisors who will be committed to your business and personal success. BLS is here to help!