Is Home Remodeling Really an Investment? Is Remodeling Worth it?

I have never seen the show “Bang for your Buck” on HGTV until today, and all it really made me do was question whether home remodeling is really an investment?  Currently, I live in a brand new Town House (or it was brand new when I bought it in 2007) which has a limited price and The Wife and I don’t look at it as a permanent home, so to remodel has never even crossed our minds.

HGTV’s Site describes the show as,

Granite countertops or a custom, mosaic backsplash? Hardwood floors or stone tiles? We are bombarded with so many beautiful home renovation ideas, not only is it difficult to decide what we want, but it’s hard to determine which choices provide the greatest return on investment. Bang For Your Buck has the concrete answers on remodeling value and how to get the most out of any renovation budget. In each episode, three homeowners from the same city renovate the same room of the house with the same budget. After the renovation, experts determine the value of each home, dramatically revealing whose remodeling choices were good investment decisions.

I watched only one episode and in it were 3 couples who spent $75,000 on a kitchen remodel.  Well only 1 of the 3 couples increased their home value beyond the $75,000 they put into it.  So if I had:

  • $500,000 home and $75,000 cash = $575,000 in assets

and then I do a Kitchen remodel

  • $560,000 house and $0 cash = $560,000 in assets

The hosts actually said they all did a great job, for investment purposes.  I was confused, I didn’t get it, so I did what any person who sits with a laptop next to him when watching TV, I went to Google.

Will Home Remodel Costs Make it Worth the Investment?

I found a so-so article on About.com which discusses Home Improvement Return on Investment,  but I am not sure I entirely agree with it.  According to About.com,

[Y]ou should not expect to fully recover the amount of the remodeling investment right away. Typically you can expect between 80% and 90% back on your home improvement investment dollar, sometimes more, sometimes less, within the first year or two. With the proper remodel, you can increase and even make money on the improvement the longer you stay in the home. As with many investments it’s the quiet power of compounding that creates good returns. By being in the home a longer period of time, you give the real estate market time to increase and you leverage the remodeling investment as property values grow.

But wouldn’t compounding occur if that $75,000 was held in investments, also?  I guess there is the argument that your house is increasing in value  with the home improvement, while decreasing the debt on it, thereby leveraging the gains, however, that only occurs if you didn’t use borrowed money to do the improvements.

This reminds me of a situation I had at work a couple months ago.  A girl walked in bragging about her new handbag, a louis vuitton.  I had bought one for The Wife a couple Christmas’ ago, so I knew how much they are.  So I said, “Wow that is a splurge on yourself” to which she responded, “It is an investment.”   Woah, a handbag is not an investment.   According to Dictionary.com an investment can be defined as,

An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

So the handbag is not an investment but according to that definition our Home improvement project might be, but it may not be a very good one!

Have you ever done a remodeling project? Has it increased the value of your home?

20 Responses to Is Home Remodeling Really an Investment? Is Remodeling Worth it?

  1. I used to watch that show for comedy value – to laugh at how much those people “invested” in their master bathrooms with jacuzzi tubs and walk-in closets and marble floors that were handmade by an artisan in Italy. It’s just a pissing contest, IMHO.

    Clearly some things do improve the value of your home, especially if it’s in bad shape to begin with. We spent about $10k renovating our last house and didn’t break even. But some of that was spent to make it “our home” so we didn’t expect to. If we hadn’t done those things though, we would have lost a lot more (it was a big time fixer-upper).

    • I wanted to take the “our home” part because I get that part of it. I can’t argue with feelings and if a marble sculpture of ME built into the foundation of your home will make Mrs. Kevin M feel better I am not going to be the one to tell her no.

  2. That LV could be an investment… ask Nordstrom’s, but they used to have a program where if you return 2 purses (when you’re done with them), you get a voucher for a new purse. Okay, maybe not an investment… but its not a complete loss. An investment? Really? ;)

    My husband bought his home for a fairly low price. Of course, being a track home (all looking the same), I think we’d benefit from installing granite countertops, etc… But in truth, whether it would work to increase our home value, I am more in it for the asthetic values of living in a house that looks nice. Because I don’t see it increasing our home value enough to make a huge difference. Of course, I could be wrong.

    • I am all for it increasing the utility and satisfaction you get out of a home, but the math might not work out!

      Yeah, that LV thing doesn’t seem like a good deal lol

  3. Shhh! I have convinced my husband that Louis Vuitton bags ARE an investment!

    I think that some home renovations done right can be an investment. Some people won’t buy a home that the kitchen/bath haven’t been remodeled in 30+ years. If you do medium level upgrades with little personalization than it will increase your sale price and you will have less time on the market. Time=$ and you can’t exactly measure that!

    The people on that show are just nuts and OVER personalize.

    • I get the old kitchen/bath turn off, but the question comes down to whether the current owner should put X (whatever X is) into the house if the selling price isn’t going to increase by exactly X?

  4. Evan,
    We have remodeled our home extensively since we bought it 37 years ago. I know we are not the typical home owners, but we plan to stay in our home for the rest of our lives unless health reasons or some other unforeseen event forces us to move. Therefore, our purpose for remodeling is not to increase the value of our home; it is to make it more enjoyable to live in. I am sure that many of our projects are not justifiable dollar wise, but we always save up, pay cash and do what we want to our house because that is what we want.

    These shows on HGTV and DIY may be entertaining, but they are unrealistic to the regular, down to earth person. (Like me)

    Good topic!

    • Wow 37 Years in one home! That’s fantastic. The Wife’s grandmother LOVES to tell me (and I always act like it is a new story) about how her and her and the grandfather built their home from scratch about 55 years ago.

      As long as you enjoy I say go for it!

  5. Hey Evan, I’ve bought and sold a few houses. I’ve never lost money, but it’s hard to say because I’ve always benefited from some market appreciation too.

    The house that I’m renovating now was purchased in a down market and I deliberately bought the worst house in the neighbourhood. I think if you’re a smart bargain hunter, you can save a bundle on renovations. Same thing if you don’t mind putting some labour into it yourself.

    For example, I went to a hardwood flooring auction and bought enough hardwood to do the upper floor (previously dated lino and ugly carpet). I picked up $9/sf hardwood for $1.49/sf. We install it ourselves. It’s pretty easy to do. I’ve seen full sets of beautiful kitchen cupboards go for $500 at an auction that would normally cost that much for just 2 base unit pieces.
    Landscaping etc. also doesn’t have to be expensive. You can pick up tile and stuff like that on kijiji either free or for 1/2 price from people that just want to unload stuff.
    I think the key to renovation is to look for something that just has cosmetic issues to work with and be a bargain hunter when you shop. There’s no way I would ever put $75k into a kitchen reno unless it was a $700k house and the kitchen was in really bad shape.
    To be honest, I like painting and putting in flooring and doing physical stuff like that. It makes a nice break from having to use my brain all the time at work.

    • But what happens if you buy a 300K house put 15 into the kitchen is it then 315K? I don’t know if it matters if it is a flipping property or not

  6. I don’t think it’s fair to go into a home renovation project and immediately expect to recoup your investment. Some of it is an investment — you buy a fixer-upper and (smartly) put money into it by doing it yourself and getting some great deals, as some commenters have mentioned. For us, remodeling our home is making it into a place that is aesthetically pleasing for us. We’re not going to drop $75K on a kitchen reno, but doing the countertops and the floors will bring it into the 21st century, making me a happy cook!

    • While a happy cook is PRICELESS, I don’t get the

      “I don’t think it’s fair to go into a home renovation project and immediately expect to recoup your investment.”

      But then your investment would be compounding less than the investment the money was in.

  7. That excerpt from About.com is total crap. So if you purchased a home in the 70s, outfitted it with linoleum floors and orange carpet, lived in it until now – how much would it be worth?

    Nothing – b/c jacqjolie would be ripping it all out.

    The basis for renovations should be general improvements. Once you get into custimizations, you shrink the candidate pool of potential buyers. Just think of those hooked-up lowrider or racing cars.

    • I’d agree there is a difference between upgrading and specific remodeling, but in my neck of the woods there are plenty of homes that have 70’s kitchens. My problem would be understanding a homeowner (especially if they want to sell) putting in $75K to increase the home value less than that 75K

  8. We’re actually about to start a construction project at our home. We have a 3 season porch that we’re insulating, replacing windows, adding a closet, etc so we can call it a bedroom when we go to sell. We’re also partially finishing the basement and adding a half bath there.

    Basically we’ll be going from a 2 bedroom, 1 bath with an unfinished basement to a 3 bedroom, 1.5 bath with a partially finished basement. I think it we’ll get our money back and it will make the house a lot more desirable.

  9. I don’t think home remodeling is ever an investment. Some things just need to be fixed or replaced. Do you want them fixed for you to enjoy or someone else who buys your place?

  10. Great post. I agree that too many people just think in terms of how much their “investment” will increase the value of their house (while ignoring the cost of the remodel).

    I do think there is a component of remodeling that doesn’t involve investment. If you want a nice kitchen and will use it and enjoy it for the next 10 years then that has to count for something.

    If you are fixing up a home to sell it – then you have to look at only the dollars and cents.

  11. Alight. I am a general contractor and I can tell you 90% of the remodels I have done have generated a return over what they spent. There is a trick to making money on a remodel….don’t get carried away with “fancy” features. No one is going to care about your heated floors, rare granites, faux painting, or rare construction products such as Fancy wood, travertine or a faucet that was hand made out of cast iron. Yeah, of course a buyers is going to like all of the upgrades but they want it at a cheap price. If you spend money on all those “fancy” products, you’ll never make money on a remodel.. Keep it simple but modern. Don’t go over board and I can tell you the money you put in your home will come back to you and then some.

  12. The things that give you a return of capital (gotta have return of capital before return on capital) are usually the small things, like painting, fixing dents, fixing plumbing, etc.

    Large remodeling projects are an expenditure, pure and simple. You do it to make your home more livable and more enjoyable. Years down the road, you can recover some of the cost in the form increased resale value, but it’s really for enjoyment. It’s like a vacation, you spend money now and hope for some fond memories later.

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