4 Types Of Home Renovation: Which Ones Boost Value?

"Fix it and flip it" is a phrase often associated with real estate. With this in mind, many homeowners undertake major renovation to their residences before putting them up for sale: Sprucing up the place will always send the sales price soaring, right? Wrong. More often than not, these upgrades fail to pay for themselves. Read on to find out how to renovate strategically and which sort of projects really add value to your property.

The Difference between Investors and Owners

Updating an investment property is generally a sound strategy – if it's done the right way. Successful advocates of the fix-it-and-flip-it philosophy are investors, with the investor's mantra of "buy low, sell high." So they purchase run-down homes at bargain prices and save money on the repairs by doing most of the work themselves. A little sweat equity goes a long way toward making a real estate investment profitable. They carefully choose their remodeling projects,too, focusing on those that will result in the most value for the least amount of effort and cost. Part of the process includes paying attention to the other homes in the neighborhood to avoid over-improving the property. If none of the other houses in the area have crown moldings and Corian counter tops, adding these amenities is unlikely to result in a significantly higher selling price.

Owners, on the other hand, often take a less strategic approach when sprucing up their homes. As a result, they can end up putting significantly more money into the project than they will get back out of it when they sell. While it's certainly a smart move to make a few improvements, don't overdo it.

So how do you know which upgrades are worth the hassle and which ones aren't? To make the most of your remodeling, it pays to keep four types of projects in mind : basics, curb appeal, value added and personal preference.

The Basics

The basic are the things that buyers expect when they purchase a home. This includes a roof that doesn't leak, functioning gutters and downspouts, a dry basement, a reliable furnace, solid floors, walls that are in good repair, retaining walls that work; most potential buyers also expect your home to have functioning plumbing and HVAC systems. In upscale properties, the basics might also include a certain number of bedrooms, bathrooms and garages, and any other amenities that are common to the neighborhood.

This doesn’t mean you have to upgrade all of it. Rather you can focus on regular maintenance and smaller, cheaper improvements that keep everything in good working order.

Adding these items to a home that lacks them doesn't add value, exactly; it merely brings the property up to the standard level of the rest of the homes in the 'hood, ensuring that you can ask a comparable price.

On the other hand, while you want your house to stand out from the competition, you shouldn't make unwarranted upgrades that greatly exceed other properties in the area. Not only will you end up losing money, but you may even scare off potential buyers. (For more insight, see Home Upgrades That Don't Pay.) In short, before you invest tons of money in an elaborate full-house renovation project, consider what the competing properties in your neighborhood have to offer. Find out how similarly priced homes in your neighborhood measure up, and make improvements based on your specific marketplace.

Curb Appeal

Items that add curb appeal help the property to look good when prospective buyers arrive. While these projects may not add a considerable amount of monetary value, they will help the place sell faster. Curb appeal items include a well-manicured lawn, low-cost landscaping, fresh paint inside and out (at least, the front door), cleaned carpets and new fixtures (even redoing the address numbers). You can DIY these projects to save money and time.

Err on the side of plain vanilla, though: Now is not the time to incorporate bold design choices into the décor. Subtle accent walls and tasteful backsplashes are simple design features that will add to your home’s appeal. Lighting is also another element that can break the bank. While you want the house to look bright and inviting, you don’t want to overdo it or overrun your home circuitry. Instead, consider installing recessed or LED lights for a modern-looking upgrade. If you need help with these projects, you can consult the interior decorating professionals. Just make sure you lean towards the cheaper side. For more on how curb appeal can help you sell your home faster, read Selling Your Home In A Down Market.)

Adds Value

The projects that add considerable value are big favorites of fix-it-and-flip it advocates – and they should be high on a homeowner's list too. While most of these efforts will not recoup their costs, some will come close. The National Association of Realtors cites new siding, kitchen renovations (new countertops and state-of-the-art appliances) and new windows as some of the most beneficial projects, often recouping 80% or more of their costs during resale. Upgraded bathrooms, refurbished decks and energy-saving improvements offer a lot of bang for the buck too. For a more detailed list, see Top 5 Home Renovations for Your Money in 2017.

Personal Preference

Personal preference projects are nifty items that you want but that other people may not like or be willing to pay to get. In most areas of the country, these include amenities such as swimming pools, tennis courts, hot tubs, wine cellars, basement game rooms and ponds. Believe it or not, a swimming pool rarely adds value to a home in this day and age. First of all, it usually costs a small fortune to have an in-ground pool installed. Secondly, many homebuyers view a pool as a high-maintenance hassle and safety hazard – and for something that's useable only a few months out of the year (unless you live in a tropical climate, of course).

There's certainly no harm in adding these items to your house, but don't expect potential buyers to be willing to pay a premium to get them when you are ready to sell. And be wary if the renovation means replacing a popular or commonplace feature. If every other home in your neighborhood boasts a two-car garage, you should probably think twice about converting yours into a game room. Do you really want to be the only house in the area with no protected place to park?

Other tricky conversions include:

  • Transforming a bedroom into a studio.
  • Removing walls to enlarge a space (unless it's a really practical move, like creating flow between the dining room and kitchen).
  • Eliminating a bedroom to extend a room.
  • Remodeling the basement (smaller improvements, like upgraded storage capacity, will recoup far more than a full renovation or custom upgrade).

The Bottom Line

Regardless of the project that you are considering, remember that your primary residence is not just a house, it's your home. If you plan to live there for many years to come, add amenities that you want to have regardless of their impact on resale. When it's time to sell, do the basics to get the property up to par for the neighborhood and add some curb appeal, but don't bother undertaking an extensive array of projects strictly in an effort to increase the purchase price of the property: These custom upgrades may appeal more to you than to potential buyers. It’s best to keep renovations small, neutral in looks and centered around improving the functionality of your home. And remember, even with the redos that are known to add value, the chances are good that you will spend far more money than you will get back in return.

To read more on related subjects, see Smart Real Estate Transactions, Investing In Real Estate and Tax Deductions For Rental Property Owners.