The Simple Dollar is running a series in which we re-evaluate Money Magazine’s “25 Rules To Grow Rich By”. One “rule” will be re-evaluated each weekday until the series concludes; you can keep tabs on the action at the 25 Rules index.
Rule #1: For return on investment, the best home renovation is to upgrade an old bathroom. Kitchens come in second.
When determining which parts of your home to renovate and which ones to leave alone, the general consensus seems to be that kitchens and bathrooms lead the pack, with additional rooms (especially a master suite) also contributing significantly to improving home equity. This Old House has a stellar guide to choosing home improvements and they concur: kitchens and bathrooms lead the pack. The Real Estate Journal leans towards kitchens, but agrees that bathrooms are a major consideration. Although some sources vary on which item actually is the best investment, in all cases, kitchen and bathroom upgrades are on top.
However, there are several additional factors to consider here. Let’s move through them step by step.
Does the renovation look good to an average person? Just because a particular design appeals to you doesn’t mean that it will appeal to a wide audience. If you’re considering a renovation in a home that you might resell in a few years, check with as many people as possible and ask them if they can name flaws or problems that they have with the design. If you keep hearing the same things over and over, not changing that element of the design could mean a strong negative influence on the value of your renovation.
Does the renovation match the rest of the home? If the entire house is quite old and out of date, simply investing in a great kitchen or great bathroom won’t really increase your equity all that much; in fact, it may decrease your equity. The best approach for your dollar is to do make sure the basics are covered in the rest of the house: are the walls reasonably freshly painted? Is the carpeting of good quality and fairly new? Is the color scheme at least moderately appealing to a general audience (i.e., no fuchsia)? A room that stands out strongly from the rest will create a huge contrast that will cause either the renovation to look bad or the rest of the house to look bad and you’ll lose what you invested in the upgrade.
Are the materials used in the renovation of high quality? If you’re going to renovate, do it so that the quality shows through. Don’t cut corners by putting in cheap faucets or low-quality wood for the cabinets in order to save a few bucks. Potential homebuyers will look at the details, particularly in such utilitarian rooms as the kitchen and bathroom, and major flaws such as low-grade linoleum or tile will be apparent, no matter how much time you invested in making the room look nice. A renovation is intended to put a veneer of quality on a portion of your house; don’t undercut yourself.
As a person who is currently considering a home purchase, it is often quickly apparent which home upgrades are done with quality and care and which ones are done to “spit polish” the house up into a higher price range. If I see flaws in the renovations, it isn’t long before I begin to see flaws everywhere.
In short, the most important factor in a home renovation is doing it right, not just renovating for the sake of adding some cheap equity. A poorly planned renovation can actually damage equity, so plan it carefully. Let’s rewrite that rule:
Rewritten Rule #1: For return on investment, using quality materials and a cohesive design provide the best returns on a home upgrade. Bathroom and kitchen upgrades add the most equity.
You can jump ahead to rule #2.