Over the years I have had many people ask me the question, “Should I renovate the house that I have, or should I move?”. We have all seen the numerous charts that show the return on investment of various renovations. I just checked a few of those charts and found the following results: Remodel your kitchen anywhere from 70% to 103% return, depending on who wrote the article. Add a bedroom, 80% vs. adding a master suite: 73%.
Every time I see these charts showing the percentage of return, I put them down thinking that none of them actually answer the question and none of them are the least bit accurate. One house might achieve a 200% return on investment, while another might return 25% with the exact same renovations.
The first consideration is the location of the house. Let’s take two identical houses. In one of them you can see cars going by at a steady pace and you are considering in your list of renovations new, triple pane, sound proof windows to block out the traffic noise. The other is an “interior lot” in a quiet neighborhood. Clearly the return on investment in renovating the house in the quiet location will be much greater than the return in the noisy traffic location, even if the two homes are identical both before and after the renovations.
The second consideration is the functional obsolescence of the style or “flow” of the house. I don’t like to disparage a certain style of home, so let’s let the builders do that for me. If you currently own a style of home that is no longer built. If no or very, very few homes are being built in the exact style of your current home anywhere in the country, then you likely live in a functionally obsolescent style that will be discounted below the value of other styles in your neighborhood. You can spend thousands and thousands of dollars renovating that home and return only $.25 on every dollar that you put into it. This would be particularly true if the style and flow are not in tune to the needs and desires of today’s home buyers and it is also in a noisy location.
The highest return will involve correcting a specific type of functional obsolescence. The charts may tell you that adding a bedroom may return 70% and adding a bathroom may return 85%. In truth, adding a 6th bedroom to a 5 bedroom house and a 4th bathroom to a 3 bath house, may return you next to nothing, especially if that extra bedroom and bath is in the underground basement. But adding a 3rd bedroom and a bath in the form of a master suite to a 2 bedroom, 1 bath rambler on a great lot in a great location, can easily return double your investment dollars.
Worth mentioning is the question, “Should I add a second story?”. Not if the footprint of the main level is too small. Again we are back to the issue of functional obsolescence. If the footprint of the home is 790 square feet, adding a second story would not irradicate the functional obsolescence of the small size of the main living areas. My opinion is that the main floor should be about 1,200 square feet for one to consider adding a second story, unless you can expand the square footage of the main level at the same time.
So back to the question. Should I stay (and renovate) or should I go (sell and buy a different house).
If your current house is not a style that you would build today, and if your lot is not located in a place where you would build a new house today, then you should sell it. Limit your investment dollars only to those things that will produce the highest return, like painting it inside and out and beefing up the curb appeal and making what you have better. My limit for this type of improvement is no more than 1% of the current value of the home. If you could sell it today for $450,000, then only put $4,500 into it and put all of that $4,500 into material and do the labor yourself. Same as getting a house ready for market, even if you are staying.
If you have a perfect location but an obsolete style, then you should consider building a new home on your existing lot. If you have a great house on a great lot that just needs to be updated, then by all means you should stay and renovate the house.
If you and your husband or wife don’t agree on what you should or shouldn’t do to your existing home, invite me to dinner and I’ll make you a list 🙂