Is Remodeling for Profit a Good Idea?
Many people are under the impression that renovating/remodeling a home with perhaps high-end flooring and tiling, upgraded kitchens and bathrooms, room additions, etc. will add value to your property and increase the sale price above the amount you invested in the remodeling.
However, if this were the case, every seller’s broker would advise their clients to upgrade the property. Unfortunately, the broad consensus among experts in the field (brokers, real estate attorneys, construction specialists) is that it is not a wise move to remodel for profit. You will very likely end up losing. Barry Grooms, co-owner of SaraBay Real Estate in Sarasota Florida offers a typical comment concerning remodeling for profit: “Hardly anything will offer a net profit…But some improvements will fetch a higher sales price.” Bear in mind that the higher sales price will generally not equal the investment spent on the remodeling.
For example, Grooms says that the return on investment (ROI) for an updated kitchen is about 60%, for a bathroom about 53%.
Another reason to balk at undertaking major renovations for profit is the simple reason that a serious, prospective buyer’s taste may differ from yours. She may therefore want to remodel the home again to suit her tastes. In this case, the offer may be lower than it would have been.
Michael Moulton of the brokerage firm Michael Saunders and Company adds that, new marble or wood floors are also questionable. Those are “too much of a gamble that a new owner may want something other than what you install.’
He does add, however, that basic infrastructure upgrades could be valuable (roofs, HVAC, electrical, plumbing.) “The reason for this is that most home buyers will have a professional inspection and most homes require home owner’s insurance, and if the aforementioned items are not in good condition, it may increase the carrying cost for the new buyer or an immediate out-of-pocket burden that… could break up the deal.”
According to The Remodeling 2017 Cost vs Value Report issued by remodeling magazine, almost no improvements (other than infrastructure) will result in a positive ROI. According to the report, the worst ROI is Kitchen and bathroom remodeling and the addition of decks and backward patios.
In general, the southwest Florida region paid back a higher ROI than the national average (This does not mean that you are in positive territory – just that you were closer to achieving it than the rest of the country).
While not necessarily true nationally, a couple of non-structural exceptions which can lead to a positive ROI in the southwest Florida region is attractive landscaping, the replacement of a garage door, and siding. (Note, the limited exceptions are all external.)
However, the remodeling trend increases every year with 4.8% more homes remodeling in the third quarter of 2017 than the same quarter a year earlier according to Metrostudy, a data and analytics company. This marks the 22nd consecutive quarter of year-over-year gains in the index. Metrostudy expects a further increase in 2018 of 4.7% year-over-year.
To sum up, if you are renovating for reasons of personal fulfillment or a practical reason such as energy (money) saving, proceed by all means. But if your reasons are to glean a greater sale price – think twice.