Property valuation is a complicated niche. As real estate professionals know, various factors affect the market price of homes, including timing, location, and specifics of the offer. Luckily for homeowners, many of these can be influenced through a proper understanding of market trends and investments in remodeling projects.
Following more than a decade of reality shows predicated upon home renovation and real estate makeovers, many Americans believe that remodeling projects are wealth multipliers. The reality, however, is far from what we see on TV. In a buyer’s market, investments can quickly turn into sunken costs, and you can lose capital in plenty of ways.
Nevertheless, it is a rule of thumb that it is reasonable to expect a 60-70% return on investment under normal market conditions. Some projects, however, are more productive than others. So, where should you look before allocating your budget?
The first mistake homeowners do
As it goes in poker, you cannot do much if you have a terrible hand. For homeowners, this means that while remodeling can increase their property’s value, the location will determine the upward limit. Sadly, there is no way around this predicament.
You can spend a fortune on your home, but it doesn’t make sense to far surpass the neighborhood average. Most home prices tend to reflect local market conditions, so be mindful of how much buyers are willing to pay. Intuition can be unreliable, especially if you are not following the market.
Where should you spend your money?
Families who are looking to relocate will usually appreciate the extra space. Therefore, the best ROI will come after adding square footage or opening the floor plan for more functional space.
However, be mindful of where this extra footage goes. Decks, for example, while popular among buyers, are not the best renovation project at this moment. Lumber costs have been increasing steadily over the last couple of years, and you may struggle to get a decent return on your investment.
Mind the climate
Our country is big enough to include different time zones, and our climate is diverse enough to provide a range of weather conditions. Due to vast differences between states, buyers may value investments depending on local temperature ranges.
For example, houses in and around Portland, Oregon, don’t require air conditioning as much as those in Texas. And while insulation may be a productive investment, it is not nearly as necessary as a new garage door, roof upgrades, or window sliding replacements.
Interior versus exterior
According to a 2021 CNBC article, the COVID pandemic has changed remodeling preferences. Overall, people are reluctant to welcome contractors inside their homes. Unsurprisingly, much of the work during the previous year focused on exterior renovation.
Similarly, Forbes cites a report from 2021, stating that most remodeling projects with decent ROI are related to entrance and curb appeal. Of these, garage door replacements provide 92% ROI, manufactured stone veneer close to 92%, and significant interior projects such as kitchen remodeling give only 66%.
Furthermore, it is vital to assess the current state of your property before investing in a costly renovation. Suppose most houses in the neighborhood offer a feature that your home lacks. In that case, you should update the list of priorities accordingly.
Research the nearby infrastructure, observe trends in commuting, and you will know how people in the area usually behave. From this observation, you’ll be able to allocate your budget accordingly. For example, while a garage addition is a less favorable investment, it may go a long way if your property is the only one without one.
How to finance these investments
According to Investopedia, financial instruments such as cash-out refinance and home-equity loans are two of the most popular project financing methods.
When risk-averse homeowners use these instruments, there is no need for cash investments other than interest payments to maintain the loans. In most cases, such expenses are tax-deductible. On the other hand, you can repay the principal when the property goes to market.
Other renovations to consider
With significant upgrades out of the way, there is an excellent chance to invest small amounts that pay off big time. However, this opportunity depends entirely on location.
According to Numbeo, people are less inclined to worry about their safety in one city than in the other. Security, for example, is a big issue in cities like Chicago, Illinois. However, property crimes are much less prevalent in Portland, Oregon.
If crime is up in your area, consider adding a security system and a few mounted cameras to cover the front entrance. This investment will be good for both safety and peace of mind.
Innovative features and technology tend to pay off well beyond the installment price in more affluent neighborhoods and tech-savvy communities around the Bay area. Therefore, it is vital to know your audience and make an educated guess on whether or not things like eco-friendly updates are going to make an impact on decisions.
