Before starting a renovation, it is very important to ensure that ALL work will add value to your property! If you are following me, then you know I always focus on ‘renovating for profit’.
However, there are exceptions …sometimes we are obliged by law to undertake work to bring a property up to date / ensure safety / conform to changes in legislation. It is very important not to take shortcuts when completing this work – it can impact on the property’s future value in many ways – so please do it right the first time.
So how much value do individual items of repair, renovation, modernisation and improvement add?
Firstly, understand that cost does not equal value. It is important to remember when planning to refurbish a property that the cost of the refurbishment will not always be directly reflected by increased value. Spending £20,000 on a kitchen in a £60,000 terraced house is never going to increase the property value proportionate to what you spent – hence cost does not equal value!
It is very likely that some people, not understanding this principle, could spend money on renovating a property but not increase it’s value by as much as they spent, and in some instances, even detract from the value of the property if they are not meeting the market expectations.
However, looking at it the other way, this concept can work in our favour because it also means that we can spend a small amount of money on a project but attract a disproportionately value for that project, therefore adding value to the property, increasing its equity and our profit. This is referred to as ‘perceived value’. Something ‘looks’ expensive but it was not.
I often get asked if there’s a list anywhere, or a website, which shows how much value different works of repair, renovation, modernisation and improvement add to the value of a property. Or if there’s a formula we can use, to work out how much value is added. Unfortunately, it’s not as simple as that.
The amount by which any repair work, renovation, modernisation or improvement will add value to a property will almost always be market driven and will depend on the demand, requirements and expectations of the market in that area. I’ll cover more on this in my next post.
I have stated that with any repair work, renovation, modernisation or improvement cost does not equal value! Any value added to a property will almost always be driven by the current property market AND the demand, requirements and expectations of the market in the specific location of the property.
Let me illustrate this by using an example. If you put central heating into a terraced house in the UK which is located in an area of extremely low demand, and where there’s a glut of terraced houses on the market, you may not add any value at all. The property may be just as hard to sell with the heating as without it. The same will occur with air conditioning …If you put ‘ducted’ air conditioning into an average 3 bedroom house in a low demand area in Australia or the US you are unlikely to see the cost reflected in the property value.
In both these examples, the additions will make the property easier to rent out, but it might not make it easier to sell.
Let’s look at the kitchen example.
Installing a £20,000 kitchen in a cheap 3 bedroom terraced house in a town in northern England, and which would normally sell for £60,000, does not mean you can increase the asking price to £80,000 (although I have seen this happen many, many times both in Australia and England). Installing a new functional kitchen costing £1,500 will increase the overall property value by approx 10% in most cases. This is a far more profitable option comparable to what you have spent.
The same £20,000 kitchen installed in a super-luxury detached house might also add no value, and might reduce the value because buyers of that type of house might expect a fully fitted kitchen costing £60,000 with all the trimmings.
Here’s another example. Adding a garage to a property in the suburbs might add a few thousand in value to that property, but if you can squeeze a garage onto a plot in the CBD it may add many multiples of that in value, possibly even £100,000 or more!
In my experience, there are no hard and fast rules, the amount by which any work will add or reduce the value will depend upon market expectations in that area. You must do your research to understand market conditions and expectations.
But having said all of that, I was interested to see that the Nationwide recently published a special report in which they give advice on how much an improvement can add to the value of a property. It’s true that they have a large survey sample of properties which they can research to extrapolate their figures from but, even so, I’d be wary about relying too much upon general guidelines. Based on their research, Robert Gardner, their Chief Economist said:
“Having more useable space is generally thought to be consistent with better quality accommodation and people are prepared to pay for it. A 10% increase in floor space, other things equal, adds 5% to the price of a typical house, whilst adding space equivalent to the size of a typical double bedroom to a two-bedroom house can add around 11% to its value.
A second bathroom also remains a favourite amongst home owners and our research shows that creating an additional bathroom can add 5% to the value of the average house.
Home owners who add a loft conversion or extension incorporating a double bedroom and a bathroom can add about 20% to the value of a three bedroom, one bathroom house. Households appear happy to pay for more space and our analysis suggests that, providing the room is useable, adding an extra bedroom can be a good way to increase the value of a property”.
If you want your renovation to add value to a property, then you need to be aware of the ceiling price for that property. This is the maximum price a buyer will spend for a property on your street – remember buyers will look for a similar property for the same money in a better street. If you’re already at the ceiling price, then don’t expect further renovations to add significantly to the value of your home. Be aware of this fact and you can save yourself a lot of grief and money!
You could produce the best-looking house on a street, but if it’s in an undesirable part of town, the ceiling value is probably limited regardless of how much money you pump into the property.
Look at the price of similar properties to yours in the area. Compare the difference of sales / asking prices between renovated and unrenovated properties. If you find the renovated properties’ value is the same as the amount of the project cost and you add in your time and the risk you’re taking, then it may not be a worthwhile investment.
Bear in mind that postcodes can go in and out of fashion. Judging where the next up-and-coming place is will always be a risky venture; going down this route is uncertain and may not pay off.
My point here is ..work your numbers on what is happening NOW…don’t speculate when renovating.
So, you are now confident there is room to add value to your property – where do you spend the money? There are 2 major areas which will significantly increase property values: increasing floorspace and kitchen/bathroom improvements
MAJOR AREAS WHICH WILL SIGNIFICANTLY INCREASE PROPERTY VALUES.
- Updating the kitchen and bathroom.
It’s remarkable how much an outdated kitchen or bathroom can put a potential buyer off a property. According to a recent Cost vs. Value report in Remodeling Magazine, 80% of homebuyers placed the kitchen in their list of top three most important spaces.
And of buyers who bought homes without certain features, 69% of those surveyed said they would have paid more for new appliances and 55% said they would have paid more for granite counters. There are a number of affordable yet stylish and durable options available – shop around and you won’t need to spend a fortune.
Kitchens are now viewed as the heart of the home and centre of social activity, which is one of the reasons why open-plan living has become so popular – people like integrating the zone with living spaces.
Many people view the bathroom as one of the last places of personal sanctuary, somewhere to unwind at the end of a long day – so look at whether any bedrooms would benefit from a well-proportioned en-suite.
In most cases, you can count on your updated kitchen and bathroom to boost the value of your home. It’s no shock that buyers are willing to pay more for high-end finishes and thoughtful upgrades.
Every real estate agent will tell you… “Get these rooms right and the house will sell itself ! ”
- Adding extra floorspace to a house is a great way to maximise its potential and create some wow factor while you’re at it.
“While having a property fully refurbished internally will increase value, being able to add square meterage will really make a difference,” says Amos Goldreich from Amos Goldreich Architecture.
Bigger living areas and extra bedrooms are key additions to consider. Perhaps an old conservatory is crying out to be replaced with a new glazed room – bridging the gap between interior and garden; or maybe a large loft offers the perfect opportunity for a spacious master suite.
Houses are still broadly priced by the number of bedrooms, but be careful not to compromise the rest of the living space by adding more. Tom Gresford from Gresford Architects warns against assuming that another bedroom will definitely increase a building’s value: “There are no guarantees in property development,” he says.
Different homeowners have different preferences for the rooms that are important to them and their family. If you’re looking to sell, try to offer spaces that can accommodate a diverse range of uses and that can be adapted as the owners’ needs change over time. People like multi-functional areas, such as studies that can be used as spare rooms or playrooms.
The amount by which any repair work, renovation, modernisation or improvement will add value to a property will almost always be market driven and will depend on the demand, requirements and expectations of the market in that area.
To help illustrate this point, the UK Federation of Master Builders (FMB) and the HomeOwners Alliance (HOA) group released a very interesting report in 2018 demonstrating how much you stand to gain from renovation projects will depend on where in the country the property is located.
For example, converting part of the master bedroom into an en-suite could add £10,437 to the value of an average home in Dorset and £14,525 to the value of a home in London, but in North East England it would only add around £1,963 – less than half the cost of the improvement work.
The same has been done for the US – This site compares average costs for 22 remodelling projects in 2019 with the value those projects retain at resale in 136 U.S. markets.
In Australia, realestate.com has built a renovation estimator to help work out a budget for every suburb across the country – I find it a bit over estimated but it can be a useful tool when starting out. https://www.realestate.com.au/lifestyle/renovation-calculator/