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Home Improvements Are Not Investments

We’ve deluded ourselves into believing that our homes are good places to spend our money as a continued investment. We relate to it much like tucking money away in a high yielding CD for long-term growth173646500sm believing we have just made a meaningful contribution to our net worth. So a new kitchen, bath, pool, landscaping is like money in the bank; plus we get to enjoy it too! It sounds great – but there is a not-so-great side to home improvements you need to be aware of.

The reality is very few home improvements return their cost, let alone a return on the investment.

Look at the Numbers

To give you a better idea of what I’m talking about let’s look at some numbers. Below is a study for the Sacramento metro areas, identifying what a home will return for a variety of common improvements. This is essentially calculating what impact the improvement would have on the sale of the property over the unimproved feature.

Remodeling Costs vs. Value for the Sacramento Area (2014)

Project

Job Cost

Resale Value

Cost Recouped

Bathroom Remodel

$19,181

$15,178

79.1%

Minor Kitchen Remodel

$21,473

$20,856

97.1%

Roof Replacement

$21,083

$19,110

90.6%

Home Office Remodel

$32,109

$20,587

64.1%

                        Data Source: http://www.remodeling.hw.net/cost-vs-value/2014/pacific/sacramento-ca/

As many people say, you can’t argue with numbers. Often, people understand this concept of depreciation in other areas of life but never relate it to their homes. For example, you know how a car drops in value when you drive it off the lot? Same thing applies here, just not as bad. For instance, an entire bathroom remodel that costs $19,181 will immediately increase your home’s value by $15,178… that’s 79.1% of your investment back. From an investment standpoint, that’s what’s known in the financial community as a loss.

But, “we get to enjoy it” you say… yes, but while you’re enjoying your improvement it is losing its value. In 15 years, that new bathroom simply becomes an old bathroom and eventually needs to be remodeled again. And so the cycle continues.

The good news is that some improvements will grow in value over time, like adding a room, a garage, or items that change the home materially/physically. However, for the most part, a home improvement is a depreciating asset.

Improvements vs. Repairs

Now, let’s distinguish between an improvement and repair. You should always repair things that could lead to further damage – like a leaky roof. That doesn’t always mean a new roof. An old roof can be nursed along for many years. In fact, I suggest you make it last as long as possible, but judiciously watch for leaks or the possibility of other damage. Always take care of your home because, if not, that’s how you lose money.

People will often spend money on their home simply because they want to. They comfort themselves in thoughts that the expense is an investment, which soothes their rational side. But it’s not an investment – it is an expense.

Rather than that long term CD, it’s more like those 80,000-mile tires that you replace after 65,000 miles and they give you an $18 rebate for the unused portion. So when you sell in 5 years, you might get $4500 for that now ‘no longer new’ bathroom.

So What Do You Do?

Choose your upgrades wisely. Make upgrades because you have the money and want to live that way – not because you think it is a sound investment. And, when it comes to ‘improvements’, spend cautiously and deliberately on your home.

56 Comments to “Home Improvements Are Not Investments”

  1. Just curious about renos done on the outside of the house? Like adding a garage or maybe improve the landscaping and adding a deck and fence if they don’t exist when you purchased the property. It seems that a few of the realtors I have dealt with in the past when purchasing a house they always seemed excited if there was a great curb appeal when we pulled up.Just wondering if it makes a difference in buying or selling a home?

    • Hi Richard, thanks for stopping by. You’re right about curb appeal, it does make a difference. While most improvements decline in value with age, landscaping commonly grows in value as it matures.

  2. Good article. Always wondering if upgrades to my house are worth it or not.

  3. I agree, the same with cars, heavily modified of personalized cars are always harder to sell and are usually sold for a much lesser price of a regular one (the things you spent for modifications are usually counted as losses)

    This will be the same for homes, but not all home improvements are bad especially is the modification will be really beneficial to the livability of the home.

  4. A remodeling can be an investment, if one does his/her due diligence prior to undertaking the project. The bathroom gets no love! Because it’s the most “forgotten” room in the house, it’s not uncommon for the bathroom to suffer from unintended neglect when it comes to a refresh/remodel. It shouldn’t be that way! If you’re considering giving your bathroom a fresh look, whether minor or major, partner up with a remodeling contractor that has a design team and watch your project take off and completed to your satisfaction.

  5. is especially true if you aren’t going to be in the home for very long to enjoy the changes you make. Thanks for the awesome post.
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  6. Totally agree. Many people think that they are adding value when they reno a property, this is especially so in a hot property market (when the prices is going up regardless) however it is usually buying well and selling once the market has moved up that is giving the gains. Unless you can get renovations done at wholesale prices I would question if you are really ‘adding value’.
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  7. very nice wriiten blog. thanks for share with us.
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  8. Hi Bill,
    Totally agree. Many people think that they are adding value when they reno a property, this is especially so in a hot property market (when the prices is going up regardless) however it is usually buying well and selling once the market has moved up that is giving the gains. Unless you can get renovations done at wholesale prices I would question if you are really ‘adding value’.
    On The Market recently posted…Tips for first home buyers buying a homeMy Profile

    • Well said. Improvements certainly should be approached cautiously if financial gain is the goal.

  9. I just went through this whole fiasco at my house. Initially, I thought it would be worth it to remodel the kitchen and the bathroom, but found that it was really a money pit and didn’t return the value as many realtors had promised.

    I do believe remodels are worth it but from now on I’ll only be doing them if I plan to stay in the home for more than 5 years.
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  10. I agree. Home improvements really aren’t much of investments, but more of repairs or improvements, caused by improves investing or change of plans.

  11. Very good cost analyses,
    i assume it is for improvement work done in the footprint of the existing house.
    It would be interesting to know the cost impact when the remodeling work will be complimented by expanding the house.
    In many cases the market value also depends on the total area of the house.

  12. Didn’t realise the overall costs of all those things and didnt realise you could recuperate that much back from them.

  13. Hmmm interesting numbers, will take that into consideration when I decide to do some improvements in the house.

  14. This sounded like a wise advice. Unfortunately, I belong in that group you’ve mentioned — thinking upgrades and improvement as investments. Which after reading your blog, made me realize that it isn’t so. Hmmm — got to think things through from now on. Thanks!

  15. I agree with you. Home improvements are not investments. I have many years experience in home improvement projects. Currently i am done one home improvement projects with security doors.
    Security Doors recently posted…Know the Advantages of Security doors in MelbourneMy Profile

  16. Very nice article which has given an idea about the improvements to be made in home at what time.Good comparison between improvements and repairs.It will surely help a lot of people.

  17. I have to agree with this article even though we are a kitchen fitting company.

    thanks

  18. These are some great tips. Another thing that people are really thinking about these days is improving there home for energy efficiency. An Energy Star home can sometimes be the difference between a home selling or not. People want to know that their long term costs will be kept down.

  19. Great tips. I have been looking around the web for things to do to increase the value of my home prior to selling it and it’s natural to think remodeling it will increase the value. Not realizing you may not recoup your costs. Thanks for the good read.

  20. I agree with this article 100%. I have many years experience in investment real estate and residential sales and most the time with the rising costs to remodel you do not a full recouping of your costs to remodel certain parts of your home. Now it also depends on the age of your home and how outdated everything is, and how much additional work you plan to do to the whole house.

  21. This is a very informative article!
    I own a home remodelling business and I love reading articles like this which give me great ideas.Thanks for sharing such post.

  22. This is Good but not everyone improves their home just for the return on investment. Some people are making improvements because it fits their lifestyle and makes them happy.

  23. This is a very informative article!

    I currently on a home remodeling business and I love reading articles like this give me a better perspective on things

    Thanks again,

    Mike

  24. Hi

    I really feel that after a while one must go for the home renovation or improvement. Because it helps to maintain the things.

    Thus, home renovation makes the things new and also the change the look of the house. Also, makes you more comfortable and allow you to love your house more desperately.

    Great post 🙂

  25. This is very true…Home improvements are not investments.

    When we improve the condition of our home, it does not give us anything in return.

    We construct a house; we repair our home because we like to live in a house which is constructed according to our dream. We should not construct it from the point of view of investments.

    In future while selling it out, we get the value of land, but not the deserving value of the constructed property on that land. So it clearly proves that repairing of home is not related to investments.

    Thanks for the share 🙂
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  26. Nice share..
    Not all home improvements are created equal.
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  27. Nice one, I love how you compared the depreciation of home improvements to driving a car off the lot. I still remember my first vehicle.

  28. “You should always repair things that could lead to further damage”. This has so much truth to it it’s scary. As a home inspector in San Diego I see this all the time. Maintaining a house will help keep a good value on the house instead of selling it at a complete loss.
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  29. Great tips, always important that you make sure that you truly want/need an improvement or repair before you dump money into a project. Thanks for the read!
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  30. Great breakdown, energy efficiency is our biggest selling point to people. Telling people they can save on their home energy bills for years to come usually is music to their ears.

  31. This article is so true. Many home improvements are necessary because wear and tear has taken their toll on the value of the home. Remodelling a kitchen in order to bring the home value up to the value it once was is hardly value enhancing.

    Having said that there are situations where genuine value can be created so you shouldn’t dismiss home improvement projects altogether.
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  32. Great points! If you’re spending on reno’s do it for you. Or do the bare minimum to sell.

    If it’s for you it’s for your home. If it’s to sell it’s for your house.

    Which is the priority?

  33. A nice analysis. My company flips house and we are able to hire contractors to do our work at a cost below those discussed in the article, but that is because we do volume and hire them job after job. For homeowners, this is good advice.

  34. I’ve seen new homeowners dump so much money into fixer uppers that at the end of the day they might as well have just bought a brand new house! Either way though we’ve been proudly doing the electrical work these nice folks for over 25 years and I say whatever makes them happy.

  35. I love how you compared the depreciation of home improvements to driving a car off the lot. I still remember my first vehicle. As I was on my back in the driveway tackling a repair my uncle walked by and taught me a good lesson on tangible property and depreciation. He told me to take a good long look at that vehicle and to prepare myself to put a lot more money into it than I’d ever get out of it.

    The same is so true when it comes to your home. I completely agree that repairs and regular maintenance are important but it’s a mistake to rationalize these repairs as an investment.
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  36. Investing in home renovation should be mage in order if needed to provide auto-energy sufficiency.
    It’s always a good investment with a fast and good ROI.Those are some interesting statistics, and may be very well true for the Sacramento area. I live in Michigan and the cost of living is significantly lower. I think it depends on the home as well.
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  37. Thanks for the article. It was very well written.
    This definitely compares to the prices in Toronto.
    Its more amazing how much resale value this can add doing some basic home improvements or remodeling.

  38. very nice information.Really home improvements are not investment.Its not good way for investment.So be careful about home improvment investment.

  39. Hi

    Interesting discussion. However, what about if you bought a property that needed fully modernisation and you do it up to sell it on?

    Assuming you bought it at a sensible price, you can make a fortune!
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  40. Investing in home renovation should be mage in order if needed to provide auto-energy sufficiency.
    Its always a good investment with a fast and good ROI

    thanks for post
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  41. Those are some interesting statistics, and may be very well true for the Sacramento area. I live in Michigan and the cost of living is significantly lower. I think it depends on the home as well.
    Aaron’s Restoration recently posted…6 Reasons You Might want to Remodel Your Home.My Profile

  42. We specialize in home isolation in order to prevent energy loss, its always an good investment that will a good ROI and fast, and being eco friedly also.

    thanks for post

  43. I agree. Home improvements really aren’t much of investments, but more of repairs or improvements, caused by improver investing or change of plans.

    But this is just me.

  44. This article is spot on but for the homeowner with a seriously outdated kitchen or bath it could mean the difference in selling quickly or having it on the market for a very long time. That doesn’t mean a full remodel but making some smaller changes could make the home more appealing. So if you go back to the numbers having it on the market for a longer time could cost a homeowner more than the upgrade. My two cents for what its worth….
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  45. upgrading the house is a good idea in some condition, it will make our house more shiny. and make us comfort, thats was my point, comfort
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  46. is especially true if you aren’t going to be in the home for very long to enjoy the changes you make. Thanks for putting this data together.
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  47. Well said! I am particularly interested in the Home Improvements vs. Home Repairs segment. Unwisely spending money to increase the value of a home, can prove to be the wrong move, if too much money is invested in the home remodeling process.

  48. I couldn’t resist commenting. Very well written!
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  49. This is especially true if you aren’t going to be in the home for very long to enjoy the changes you make. Thanks for putting this data together.
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  50. Great insights and tips. Upgrades should make the home more comfortable and more efficient.
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