With real estate demand so strong and more people spending more time at home due to COVID-19, there is a remodeling boom. We want to make our homes as great as possible. Therefore, a common question for homeowners now is: How much should you spend remodeling a house for maximum profit?
You don’t want to overspend on remodeling and not recover its original cost. You also want to spend money remodeling the right things. As a real estate investor, the idea is to get the best return on your investment as possible.
You’ve also got to decide between whether you want to remodel with a permit or role the dice without one. It’s already difficult enough to get a quality contractor. Going through the planning department can really be a slow and painful experience.
General Home Remodeling Advice
I’ve personally remodeled three homes and I never want to remodel again! Remodeling always costs more and takes longer than expected. But for those of you who want to suffer through the pain of remodeling, this post is for you.
Whether to get a better deal or earn some sweat equity, here are some top down views I have about the process:
- Pay more for quality material since labor cost is relatively fixed
- Get the proper permits to protect yourself from bad workmanship, while also boosting the value of your home through a more comprehensive 3R report
- Expect the overall job to cost 30% more and take 30% longer, but don’t let the contractor know
- Adding livable space is the most valuable type of remodel
- Always speak to the last contractor’s client at the very least
- Great homes have wonderful outdoor space, don’t neglect landscaping
- The value of a remodel fades over a 20-30 year period, at which point a new remodel may be due
- Decide whether you’re remodeling for profit or for personal use
The big question every homeowner has when it comes to remodeling is how much they should actually spend to increase their chances of not only getting their money back, but also making a positive return if you decide to sell.
I believe the #1 home remodeling error is spending outside the scope of the home. The second most common remodeling errors is not having the proper expectations at the start of the project. Let’s discuss a framework.
How Much Should You Spend Remodeling A House?
Decide whether your house is high-end, mid-end, or low-end. Once you make this decision, then you can better answer how much you should spend remodeling a house.
You can make the call based on the value of your house compared to the median home value in your city and neighborhood. If the value of your home is within +/- 25%, it should be considered mid-end. Once you’ve decided what level your house is, remodel based on that level.
There’s a wise saying, “don’t buy the most expensive home on the block.” Instead, buy the cheapest home on the block with the most amount of expansion potential. After all, if the price per square foot to build is cheaper than the current selling price per square foot, you’ve got yourself an easy arbitrage.
For example, in San Francisco, you can build for less than $500/sqft and sell for $1,000/sqft in many neighborhoods for a nice 100% gain.
Homeowners tend to overspend on remodeling because they think, “While we’re at it, why don’t we do this too.” This kind of thinking makes the project cost way more than the original plan. Contractors can influence homeowners to do more as well. “The wall is open, might as well install a Tesla charger while we’re at it,” said my contractor once. No thanks.
Revisiting My Last Remodel
My last home project entailed building a 275 square foot deck off my master bedroom while also replacing two, 50-year-old aluminum windows spanning nine feet in width with a 12-foot sliding glass door. I called this project Phase Two when I bought my fixer in 2014.
Phase One entailed remodeling my kitchen, updating the electrical, refinishing the floors, painting the entire interior, replacing the roof, updating the plumbing, painting the exterior, and building a new master bathroom.
If you’re living in the house, it’s a good idea to space projects out over time. You’ll have more time to save money so the expense won’t feel as painful. You’ll also get to think more thoroughly about the things you want to be done so there should be fewer remodeling redos/regrets.
Finally, if you’re flexible on time, your contractor may give you better pricing because you may be employing him during slow periods.
Spend Within The Scope Of Your Property Value
Because I downsized to a 40% cheaper house, I was stuck thinking in price ranges 50%+ higher for everything.
For example, I had to choose what type of sliding doors I wanted. On the lower end was Simonton for $8,000. In the middle, there were Milgard, Pella, and Jeld-wen that cost $10,000 – $12,000. Then there was Marvin and Anderson on the mid-higher end, which I had used for my old house that costs about $15,000. Finally, there was this European brand called Vitrocsa that a buddy had told me about which cost about $25,000.
To make sure I was spending within the scope of my home I went open house hunting in my neighborhood. My mission was to find a remodeled house in a similar price range and observe what type of windows and doors they used.
I stumbled across a house in my neighborhood that went through a one year remodel. It’s 3 bedrooms, 3 bathrooms, and has 1,800 square feet of living space, with a peekaboo view of the ocean on a 3,000 square foot lot. The house had lower-end Simonton doors and windows. The house sold for $1.75M.
Given the listing was comparable to my house, I knew the ballpark range to spend for doors and windows. In the end, I paid a couple thousand more for Milgard sliding doors since the quality and look were better, and the cost to install them was the same.
Home Remodeling Price Guide
Rank the importance of each room and assign a remodeling maximum cost based on a percentage of the building’s value.
When you do a home remodel, you will get the highest return from a medium-end remodel job that appeals to the largest amount of people. Don’t get too eclectic in your tastes.
A lot of people throw out remodeling costs like “$10,000 for a small bathroom remodel,” or “$50,000 for a kitchen.” These figures are meaningless if you haven’t also considered the realistic value of your house. Instead, you must think about your remodeling costs as a percentage cost of your entire house.
For example, let’s say you want to update your kitchen. You can either rip everything out and replace the floors, tiles, countertops, and appliances or you can do all that plus follow your contractor’s suggestion and expand another 100 square feet into the yard “while you’re at it.” How much should you spend?
Let’s say you bought the house for $1,000,000. It has three bedrooms, two bathrooms, 1,800 square feet of living space, and a 5,000 square foot lot. A property’s value is made up of land value and building value. In your case, the split is 50/50.
Not All Rooms Are Created Equal
If you include the kitchen, living room, and laundry room, the house has a total of eight rooms. The value of each room is therefore around $62,500 ($500,000 building value divided by 8 rooms). You can consider $62,500 as the max you would ever spend doing anything to a room.
But of course, not all rooms are considered equal. Even though a master bedroom is very valuable, it’s not as expensive to construct as your typical kitchen due to the lack of plumbing, complicated electrical wiring, and installation of appliances.
Further, not all rooms are the same size as well. Therefore, you’ve got to therefore make a judgement call on the value of each room based on its size, amenities, and importance to you. When remodeling a house for maximum profits, you must focus on the highest value rooms first.
The Value Of Rooms Ranked From Most Valuable To Least
To do a profitable home remodel, you should spend money remodeling the following rooms in order:
- Kitchen
- Master bathroom
- Guest bathroom(s)
- Master bedroom
- Living room
- Dining room
- Guest bedrooms
- Deck (outdoor space less valuable than indoor space)
You may have a different opinion. It’s very easy to build a bedroom, living room, or a dining room. All you need is to frame the room, thread in the electrical, put up sheetrock, mud and sand the sheetrock, paint the sheetrock, put up crown moldings if you wish, install lighting and switches, replace the floors and you are done.
Calculate The Value Of Each Room
Now I assign the value of each room as a percentage of the value of the building value of the house (not the entire house, although you can if you stay consistent). I’ll use $500,00 in this example.
- Kitchen: 5% = $25,000 with a range of 3% – 10%
- Master bathroom: 4% = $20,000 with a range of 2% – 5%
- Guest bathroom(s): 2% = $10,000 with a range of 1% – 3%
- Master bedroom: 1% = $5,000 with a range of 1% – 2%
- Living room: 1% = $5,000 with a range of 1% – 2%
- Dining room: 1% = $5,000 with a range of 1% – 2%
- Guest bedrooms: 1% = $5,000 with a range of 1% – 2%
- Deck: 1% = $5,000 with a range of 1% – 3% due to size
Realistically, most people are just going to focus on remodeling their kitchen and bathrooms. For bedrooms, family rooms, and dining rooms, the most you’ll do is paint, add crown molding or wainscoting, upgrade the windows, and redo light fixtures. Sometimes you might move a wall.
You can always spend more or less if you like. It’s a personal choice. Just remember to think in percentages and make sure your remodeling quality is in-line with the value of your home.
Most Home Remodels Don’t Recoup The Cost
Here’s an interesting chart to give you an idea of the nationwide average cost of various remodeling projects. As you can see, most projects do NOT recoup their job cost. Further, as time goes by, the value of the remodel declines due to wear and tear and outdated styling.
|
PROJECT
|
JOB COST
|
RESALE VALUE
|
COST RECOUPED
|
|
|---|---|---|---|---|
|
MIDRANGE
Attic Insulation (fiberglass) |
$1,343 | $1,446 | 107.7% | |
|
MIDRANGE
Backup Power Generator |
$12,860 | $6,940 | 54.0% | |
|
MIDRANGE
Backyard Patio |
$51,985 | $28,546 | 54.9% | – |
|
MIDRANGE
Basement Remodel |
$71,115 | $49,768 | 70.0% | |
|
MIDRANGE
Bathroom Addition |
$43,232 | $23,283 | 53.9% | |
|
UPSCALE
Bathroom Addition |
$81,515 | $46,507 | 57.1% | |
|
MIDRANGE
Bathroom Remodel |
$18,546 | $12,024 | 64.8% | |
|
UPSCALE
Bathroom Remodel |
$59,979 | $35,456 | 59.1% | |
|
MIDRANGE
Deck Addition (composite) |
$17,249 | $11,252 | 65.2% | |
|
UPSCALE
Deck Addition (composite) |
$39,339 | $22,171 | 56.4% | |
|
MIDRANGE
Deck Addition (wood) |
$10,707 | $7,652 | 71.5% | |
|
UPSCALE
Entry Door Replacement (fiberglass) |
$3,276 | $2,550 | 77.8% | – |
|
MIDRANGE
Entry Door Replacement (steel) * |
$1,413 | $1,282 | 90.7% | |
|
MIDRANGE
Family Room Addition |
$89,566 | $62,055 | 69.3% | |
|
MIDRANGE
Garage Door Replacement |
$1,749 | $1,345 | 76.9% | |
|
UPSCALE
Garage Door Replacement |
$3,304 | $2,810 | 85.0% | |
|
UPSCALE
Grand Entrance (fiberglass) |
$8,358 | $5,855 | 70.1% | |
|
MIDRANGE
Major Kitchen Remodel |
$62,158 | $40,560 | 65.3% | |
|
UPSCALE
Major Kitchen Remodel |
$122,991 | $76,149 | 61.9% | |
|
MIDRANGE
Manufactured Stone Veneer |
$7,851 | $7,019 | 89.4% | |
|
MIDRANGE
Master Suite Addition |
$119,533 | $77,506 | 64.8% | |
|
UPSCALE
Master Suite Addition |
$250,687 | $150,140 | 59.9% | |
|
MIDRANGE
Minor Kitchen Remodel |
$20,830 | $16,699 | 80.2% | |
|
MIDRANGE
Roofing Replacement |
$20,664 | $14,214 | 68.8% | |
|
MIDRANGE
Siding Replacement |
$14,518 | $11,093 | 76.4% | |
|
MIDRANGE
Two-Story Addition |
$176,108 | $125,222 | 71.1% | |
|
MIDRANGE
Universal Design Bathroom |
$15,730 | $10,766 | 68.4% | – |
|
UPSCALE
Window Replacement (vinyl) |
$15,282 | $11,286 | 73.9% | |
|
UPSCALE
Window Replacement (wood) |
$18,759 | $13,691 | 73.0% |
Remodel More Expensive Homes, Buy Cheaper Finished Homes
You might be wondering how do these percentages work for lower median-priced homes? For example, if the building value is only $200,000, will the above percentages still make sense since the cost of a Thermador range is the same as it is in Birmingham as it is in San Francisco?
The answer is that you’ll simply get less bang for your remodeling buck as you’ll be forced to move to the higher end of my suggest percentage range, if not beyond.
Therefore, you are better off buying a completely done home at lower price points and buying fixers at higher price points with much more upside. This way, remodeling a house will be more profitable.
Just be wary that many savvy contractors will simply raise their prices when working with clients living in expensive neighborhoods. The contractor who built my bathroom said he charges 100% more whenever he works on a Pacific Heights home (one of the most expensive neighborhoods).
The homeowners there don’t realize the true cost of labor since they only hang out with each other. They are all getting screwed on premium pricing. Who said having a diverse group of friends doesn’t have its benefits.
Tips for Saving on Home Remodeling Costs
If you’d like to save on home remodeling costs, you can always do more of the work yourself. Just be forewarned, if you do the job wrong, you could experience more costly repairs in the future.
Further, if you are doing your home remodel with a city permit, you may not pass inspection if you don’t really know what you’re doing. The electrical inspection is the hardest to pass. But building and plumbing inspection isn’t a cake walk either.
Here are some ways you can save on home remodeling costs:
- DIY demolition: You don’t need to be an expert to pound a hammer into the wall and remove all the debris.
- Order and pick up all the finishes: Instead of having the contractor charge you an hourly fee to order and pick up all the finishes, do it yourself. After all, it’s up to you to decide what you like. The contractor is focused on the rough finishes.
- DIY painting. Painting is one of the easiest things all of us can do to save on home remodeling costs. I slowly painted all my bedrooms in the last house I bought while the subcontractors were remodeling the bathrooms and kitchen. Painting is also very relaxing, especially if you put on some music or listen to a podcast.
- Buy used: If you are really frugal, you can buy slightly used appliances for less.
These four things are a low-risk way to save on home remodeling costs. I really wouldn’t do the plumbing, building, and electrical by yourself. You want to pass the multiple stages of inspection on the first try. Once you fail one stage, it may take a week or months to pass again.
When Remodeling A House, Always Think In Percentages
The key is to always think in terms of spending a set remodeling amount based on the percentage value of your property. If you overspend on remodeling, you will never recoup the cost, let alone make a return. After a couple decades, you will probably want to remodel again.
The final elements to remodeling are timing and purpose. If the economic conditions are right, then the best time to list your property for sale is as soon as all the remodeling work is done. If you are remodeling your forever home to enjoy, then none of this really matters until it does.
For our next house, we plan to buy a Oahu property that was completely remodeled 3-5 years before listing. We don’t want to pay a premium for brand new construction just like how we never want to pay a premium for a brand new car.
In 25 years, hopefully our son will be willing to take on the remodeling project because we sure as heck won’t in our 60s!
Invest In Real Estate Passively
Remodeling a house can be a real pain. Not only is there the cost of remodeling, there’s also the cost of permits, cost of stress, and the cost of time. After doing so many home remodels since 2005, I no longer want to remodel for profit anymore. I’ve got two little kids to take care of now and I want to earn passive income.
Investing in REITs and private eREITs are my favorite way to profit from real estate today. If you’re looking to buy property as an investment or reinvest your house sale proceeds, take a look at Fundrise, one of the largest real estate crowdfunding platforms today.
Fundrise are the pioneers of diversified eREIT funds to provide focused, yet diversified real estate exposure across the country. For most investors, investing in a diversified real estate portfolio of high quality commercial properties is likely the best way to go.
Passive Real Estate Investing For Accredited Investors
If you are an accredited investor who is bullish on the demographic shift towards lower-cost and less densely populated areas of the country, check out CrowdStreet. CrowdStreet focuses on individual commercial real estate opportunities in 18-hour cities.
Thanks to technology, it’s now much easier to take advantage of lower valuation, higher net rental yield properties across America. Diversifying your real estate holdings is a great idea.
Both platforms are free to sign up and explore. I’ve personally invested $810,000 in real estate crowdfunding so far. Real estate crowdfunding now makes up roughly $75,000 of my ~$300,000 a year in passive income.
Excellent article !!
Very Thorough!!
Home renovation cost I think totally depends on where you live if you are using that renovation to flip the house and what’s the market. If sellers or buyers
For example I live in San Antonio, Texas. A few years ago , even if you do $100k best renovation, the market was so much down that the house would not sell. Forget about profit but you will not recoup the amount spent.
But now the market is so much high , sellers market that if you spent that much money , you will get $200 k out of it !!
It all depends, very relative . One needs to study thoroughly before undertaking any project no matter what the extent of Reno is !
Great post, I’ve been learning to DIY for our house during the past year or two. I managed to rebuild a wall under the stairs to extend around our sump pump which I’ve almost finished writing about. Right now I designed a new craft space for my wife which is a basic remodel — new floor/ceiling and paint/wallpaper which I will be wrapping up before summer.
You’re totally right it takes awhile, even longer to DIY. I also second getting permits for DIY. I got electrical and building permits for the craft room. I roughed in all the electrical but hired an electrician to finish it. Totally worth it as they combined some circuits, added arc-fault protection, cleaned up my wiring, and replaced some outlets with GCFI and new fixtures. Couldn’t do that myself. It all passed inspection so that’s a major benefit.
I’ve been chronicling all these projects on my blog. As for cost–I’ve managed to keep each project below $5000, especially if I exclude tools. The craft room has the highest materials cost because like you said, I went with higher-end finishes (wood-look plank ceiling, luxury vinyl plank floor, nice paint, nice trim) but it STILL is coming in less than $5,000 when it would have costed $10-12k for someone to do it for me. This is a room I don’t expect to recoup much but it will have a huge quality-of-life improvement for my wife’s hobbies and for her to have a space all her own.
It’s funny how quickly you learn the in’s/out’s of home renovations when the bids start to come in. My first is a whopping 73% total of the purchase price- good gravy! While you won’t move the needle much on the fixed labor price, my strategy is not to talk him down in that but to use his contractor discount, which can be substantial. Many will flow that back to you. Also, be leery of contractors who insist you pick the materials from their inventory or showrooms. For example I had one who flat out told me he won’t assume any responsibility for incorrect measurements if I were to go with another cabinet supplier but assumes all of the risk if I use his. What? The other contractors said not to worry in that they will not let something like that happen in the first place, which is a more measured response.
For the big ticket items it pays to really do your homework. Take cabinets for example. It helps to get estimates from several suppliers, especially for popular brand names (like Kraftmaid). You would be amazed at the cost differences for the exact same (or close) cabinets. Also, ask the designer if there is anything he/she can do to knock the price down on top of sales. I asked about longer cabinet runs of 3 versus 1, which lowered the price. She also recommended I go solid plywood construction only on the drawers/cabinets I open more frequently. If you have a lot of cabinets, these savings add up!
When interviewing the contractors, it’s equally important to gauge their BL (not BO)- body language. Do they want the job? Are they patient and helpful with their ideas? Do they seem enthusiastic? Are they quick to suggest short cuts that might start to save you money or a different perspective on the layout/design that is a game changer in saving money? When they submit their bids to you, who was thorough, followed up, and explained things properly? I had one leave out a big ticket item that was the center of our conversation, leaving me to wonder about their attention to detail when the work begins. Finally, dig deep to find out why a bid is too high or low. The one who came in at 73% of the purchase price of my home estimated 3x higher cost in material than what I should reasonably expect, so my point is you can get things quickly back in the box by asking the right questions and doing your homework. Sorry so long!
Hi Sam, our home in Louisville KY cost $169,900 in 1995 & was brand new when we bought it. 1500 sq ft mail level with walkout basement same size for total of 3000 sq ft of living space. Brick home with a huge back yard for dogs & kids. We replaced the 23 all-wood casement windows, sliding glass basement door and the back door with great double pane tilt out windows & nice doors for $7000 total! I got 3 estimates ranging from $35,000 for triple pane windows to the $7000 we payed window world & they did an awesome job! I guess it depends on where you live!
Great content. I am curious if the percentages are based off current home value or expected home value post renovation?
Thank you for coming up with this subject, I was really confused about the pricing and what should be my budget for remodeling a house completely!! I am happy to come across your blog; this has really solved my confusions. During shelter-in-place, it’s been hard to get people to work. But hopefully, remodeling prices will come down.
Great remodeling guide!
When you mentioned about buying the house with the most expansion potential, I realized that I should also start checking up on how much beautifying my house could have. After my husband’s recent promotion at work, he started talking to me about plans home renovations and while I have much that I want to be changed, I don’t really know where to begin. Perhaps I could also consult the very contractor that we will be getting as well.
Thank you for all this great information about remodeling! I had no idea that kitchens actually bring the most value to your home when you remodel them! it would be nice to know that you are getting value, and a nicer looking kitchen in the process.
I like how you said to pay more for quality material since labor cost is relatively fixed when you remodel your house. My wife told me that our master bathroom looks old and it has some damages such as a cracked toilet and shower is dirty. I will ask her to help me request different quotes for bathroom renovations so that we can set a budget to renovate it.
My sister told me that she would like to remodel her house since her family is growing. I like how you said that adding livable space is the most valuable type of remodel. I will share this article with her so she can know the benefits of remodeling her house and that she should also think about landscaping as you said.
I thought that it made sense when you said that the cost of your kitchen renovation will be dependant upon what kind of remodels that you choose to go with, such as expanding your space or not. I have been thinking about having my kitchen remolded but I have been worried about the cost. I will be sure to ask professionals for their quotes in order to find a reputable contractor that will do the work within my budget.
Thanks for the tip to speak with a contractor’s past client when trying to find a contractor to work with for a remodeling job. After several years of saving money to build a budget, I am finally ready to remodel my kitchen and basement. I will be sure to meet with past clients of contractors so that I can get an idea as to which professional service will best match my needs for remodeling.
This makes a lot of sense – like putting thousand dollar wheels on a thousand dollar car.
Hi Sam. I’m selling a rental property in SF after 12 years of being a landlord and am currently going through the process of selecting what to upgrade prior to sale. I agree with your list…my big dilemma is what to do with the approximately 650K I’m going to receive. Any ideas? Have you looked @ Fundrise?
Thanks for all these great tips on remodeling Sam. I do like your idea of spacing out remodeling projects. I had my kitchen done eight years ago, and I was pleased with the outcome. Next stop for us which is next year is our two bathrooms, and this time we will be hiring a new contractor. The one my sister hired to have her bathroom remodeled.
I love what you did with your bedroom. That’s a great looking bedroom and with a view like that? Adding those doors, added significant value to your house for sure.
What are everyone’s thoughts on adding a high quality in-ground pool attached to an outdoor living space? $800k and up neighborhood where most houses have a pool but our house does not. Got the house for a great deal and it’s updated interior needs minor upgrades but nothing major. Thus the consideration for an outdoor living / in ground pool idea. Worth the investment (or total waste)?
I would most likely not add a pool anywhere I live, even if most people around me had pools. Pools are an automatic drain on finances and time for upkeep. If you’re not going to enjoy it yourself (by actually swimming frequently), don’t add it. In terms of resale, some buyers don’t want the hassle, and even if they do, they might want to upgrade or change the look or style. Pools, like all renos, get dated, too. I’m not a real estate agent or a financial person, but I had to sell my childhood home when my mom got ill. We had an in-ground pool that was neglected as my parents aged, so it was basically a headache once we kids moved out. People with very young kids and retirees are usually not interested in a pool, and there are laws around fencing and insurance, too. I would spend the money on gorgeous landscaping and making sure the upkeep on the house is good. If I ever have a house again, the most I might do is an indoor sauna and/or indoor or outdoor hot tub, but I’m in a colder North American climate. That said, if you will enjoy the pool while you live there, and you don’t mind either caring for it yourself or hiring people to care for it, then, put it in for you, but don’t expect too much on the resale end. My very andecdotal 2¢. When I spoke to real estate agents (a few years ago), the fact that there was a neglected pool (that a new owner could fix up) was not a draw. The size of the lot was more important to people.
I love this. I am thinking of tearing down our old detached garage and adding a nice attached garage to help with resale.. what do you thing about that? Would it be a good move?
Bobbie- adollarearned.com
A year ago, I’ve had in mind that my kitchen renovation would range from $20K to 40$ average cost, and that’s only for minor upgrades. I have wanted to expand my kitchen area sometime in the future, but seeing your chart with the average costs for various house parts renovation, I think I am going to take a back seat and let those numbers sink in. Thank you for sharing that interesting chart that also included resale value and recoup, very informative, indeed!
Talked to a guy going through a kitchen and another room remodel with his family. His contractor has raised the price on a lot of their materials due to the recently enacted tariffs. Specifically items from China. Wonder if anyone else is starting to experience this also?
I am with you, Sam. I have been through new builds and remodels and major cosmetic updates but would hate to do it again. I begrudge the money as well as it will not increase the value of the property and I’d rather have more travel and fun money. NTL, I still dream and plot what I would or could do to my house, but the numbers do not make sense. I will focus on the cosmetic updates, given that anything structural like adding windows to the basement (ground level) or dormers to the top floor and moving the bathroom to take advantage of the spectacular view are a can of worms. I am gone 6 months a year anyway, so maybe just be gone more.
As a keen follower of the Oahu real estate market, would love to hear input from you as to what you are thinking is happening there. I monitor it closely and from what I can see the slide is on and in a big way. Even though agents are talking it up, I’m seeing a lot of properties sitting for a long time and many listed are not likely to make the price they were sold at 10 years ago. Do you think it’s going to take the 3-5 year timeframe you are talking about to hit rock bottom? I would not have liked to have bought a luxury condo 5-7 years ago with the resale market full of this type of property as they all rush to the new builds in Ka’ako.
Vicky, fun questions you can ask in the real estate forums and we can discuss as it’s a great topic. I’m trying to stay on topic with the individual posts. Thanks!
I think you make excellent points on when to remodel versus when to buy a finished home.
Because the hourly rate of labor should be fixed on a project, the cost of labor in a low-end remodel represents proportionately more on the total project budget than for a high-end project. For a high-end remodel, the total project budget’s percentage allocated to labor costs should be lower. This creates a lower-cost $/sqft hurdle rate to cross for cost-effectiveness when making the decision to make the house more appealing and would make high-end remodels more effective.
Further, your arbitrage argument also holds more water. If you’ve room to expand or improve the property for a $/sqft cost lower than what you could fetch on the market, by improving the property, you can collect that profit on the sale. Great ideas and guidance for when making a decision to invest in renovations.
Knowing your limitations are key. Nobody is going to pay $1M for a house in a neighborhood where every house should go for $250K, no matter how much you sink into it.
Remodeling can be addictive and also so completely overwhelming! Really enjoyed this post! Love your pictures and the table.
A friend of mine bought a total fixer recently and I was secretly saying to myself “thank goodness I don’t have to deal with that stress”. I am however really excited to see her before and after pics! ;D
For me, kitchens are a big deal. Additions like mother in law units probably add the most value in my opinion. This multi generation thing is happening which makes the MIL suite sought after. If not that then a passive income in renting or Airbnbing during the summer.
People neglect the yard. If there was a nicely built play structure or swing set then it’s totally a +1 in my book. The other thing is fruit trees!!! Not sure if that’s a remodel but listing agents always bring up fruit trees.
Agree about MIL suites and the yard/garden. You can rent suites to reliable high quality tenants easily in a good neighbourhood (e.g. close to university you can rent to grad students). I always look at the listings for the area and what is featured by the listing agent as that is what will add value or help sell the house later.
Thanks for this post. We’ll move into our duplex in about a year and it needs a lot of work. Focusing on the kitchen and bathrooms is a good idea. We’ll do that first.
What about finishing the basement? That adds living space, right? We want to do it, but we’ll probably put it off for a while. That job will trigger a big property tax increase, I think.
Joe-
In my area (midwest) and with my life (2 kids under 3) having a finished basement has been AMAZING, and is definitely worth whatever extra I paid for it when buying the house/property taxes. While we still have a lot of toys (too many) in the family room, we have been able to relegate much of the big stuff (play kitchen, little table, train set, etc) to the basement. This way we have much less clutter in the living space. I grew up with an unfinished basement and so thought that’s what I wanted. Thankfully, my wife talked me into a finished basement, although there are some smaller unfinished areas that I use as a workspace (small wood working) or long term storage (ie think christmas decorations). Now, with the finished basement I do have to worry more about water, but I have a good sump pump, back up sump pump and generator (probably overkill) so if something goes wrong, I probably have bigger issues than a little water in my basement.
If you finish the basement, use a drop ceiling. Its not as pretty as a properly finished ceiling but its a) cheaper and, more importantly, b) it can be worked on. As ours is a proper finished ceiling, it has little access points to get at random shut offs and cable connections. However, I can almost guarantee that some day when we have an issue it will not be at or near an access point.
Thanks for the tips. Our current living space is full of toys. It’d be great to relocate all that stuff somewhere else.
I’ll research drop ceiling. I have no idea what that is.
From my experience it’s cheaper to remodel than to build additional square footage. In my market you can do upper (but not luxury) designed remodels for $50/sq ft while new build is 100-170/sq ft for that same range.
With San Francisco’s prices your analysis makes sense though.
I can get an 8k/sq ft mansion for under 1.5 million on the golf course here to put it in perspective. I imagine the mansion cost 200-300/sq ft to build.
Thanks. This is very useful as starting out on renovating my 7th property. This one is in a market I’m less familiar with so I loved your notion of comparability and keeping to the range of your house. Re-sale is so important even if not on the cards for the next 5 years at least.
I liked this “Expect the overall job to cost 30% more and take 30% longer” as I built for a slightly tighter budget range so may go back and look at what I have set aside, just in case I reach these multiples.
Perfect timing on your post!
Thanks for sharing this Sam. Would the suggested numbers change significantly for a house you’re intending to flip vs live in?
I learned something new about sliding doors btw. I didn’t realize they could cost upwards of 15K for a mid range set. Is this due to them being custom for the opening?
It is so easy to get caught up with the remodeling bug and contractors know this and play on your emotions. You are correct that they often suggest add-ons which pad their bottom line with the phrase, “Since I am already here, or since this wall is already opened up.”
I have done work to my house not with the intent of recouping the cost (I still hope it has improved the value a lot) but to meet my needs and tastes. I figure this is my forever home so make it perfect for me.
Even though I live in a very LCOL area, I know I get inflated prices because of my property. It is hard to hide a 50 foot natural waterfall in your backyard from them as well as the acreage of the property (7.67 acres) so anytime I have someone come out to do an estimate I know that they are probably adding on to the labor and giving me the unfavorable “doctor rate.” A lot of them in fact ask me what my occupation I am in to afford all this right off the bat.
In the end I still come out way ahead than those living in HCOL areas but you do end up paying more for these hidden costs because of how nice your property is.
I am extremely jealous of your waterfall property. Maybe one day! :D