Should You Remodel Your Home Before Renting It Out?

By: Daniel Goldstein,

Published: Market Watch Feb 10th, 2015

To Remodel your home, or not to?

Here at Real Property Management Coast in Orange County, we can help you with your remodels. But when is a remodel a good idea. Here is an article by Daniel Goldstein : When it Pays to remodel your home – and when it doesn’t.

As home values increase and interest rates remain low, real estate in the U.S. could see a healthy rebound in 2015, with more people entering the market. And that means many potential sellers heading to the home improvement store as well as contractors phones beginning to ring.

“A rising housing market lifts up remodeling,” says Craig Webb, editor in chief of Remodeling Magazine, an industry trade publication. Of course, it’s not a secret that kitchens and baths often attract the most attention, simply because it’s where we spend the most time, says Webb. But remodeling kitchens and baths doesn’t always pay off with the highest cost-to-value ratios. For example, a $25,000 kitchen remodeling is only likely to recoup 68% of its cost when the house is sold, said Webb. A $100,000-plus kitchen remodeling nets even less — just 59%.

Remodeling Magazine recently compiled its 2015 predictions for remodeling values, project-by-project and market-by-market. Call it Moneyball for home improvement. The impressive sabermetrics-style compilation looked at 36 projects and how they fared in more than 100 markets, to determine which ones get you the best value when you sell. It also looked at markets where the recoupment cost is highest, and where you probably shouldn’t even bother to do the work.

“The simpler and lower cost the project, the bigger its cost-value ratio,” Webb says, noting that a steel door entry replacement that typically costs less than $5,000 and looks good from the all-important outside will likely net a 102% recoupment in 2015, meaning you’ll probably make a profit if you install one before you sell your home. Similarly, you’ll be able to recoup more than 80% of the cost of a $10,000 wood deck when you sell a house, but only 68% of a composite deck that costs $16,000.

Typically, you don’t get 100% back on your home remodeling investments, though they likely boost your home’s resale value and overall appeal, and reduce the time that the home will stay on the market.

In some rare cases, such as in the hottest housing markets, you can actually recoup 100% of your costs no matter the project, and even make a significant profit, according to Remodeling Magazine’s latest numbers. For example, adding a wood deck to a home in San Francisco, where it often can be enjoyed year-round, yields a whopping 147% return (at least in 2015), meaning a nearly 50% profit on a $10,000 deck investment.

The top seven markets where the average payback for all projects in 2015 is expected to be the highest are: 1. San Francisco (103%), 2. Honolulu (94.6%), 3. San Jose, Calif. (87.1%), 4. Riverside, Calif. (84.1%), 5. Sarasota, Fla. (80.7%) 6. Austin, Texas (78.6%) and 7. New Orleans (77.6%)

Webb recommends that sellers remember one thing before they put their home on the market: “Curb appeal is key,” he said. “What you do on the outside does better than what you do on the inside.” To that end, Webb noted that three modestly-priced exterior projects ($5,000 to $25,000), namely manufactured stone veneer additions (92%) and fiber-cement siding (84%) and vinyl siding replacement, (81%) are likely to be the best values in 2015.

Also, sometimes it’s best to go with tried-and-true projects, rather than year-to-year fads. For example, Webb noted that the biggest drop in the value of a project in 2014 was the same project that had the biggest gain the year before: installing a backup power generator. Webb said the cost-value ratio for installing a backup generator is expected to sink 11.3% this year, after having jumped 28% in the 2014 report. “Weather may have played a role in that decline; in the absence of a weather event like superstorm Sandy, Realtors had perhaps begun to see the generator’s value in a new light,” he said.

When it comes to saving money on the remodeling jobs, one tip is to plan to have the work done when contractors are waiting for the phone to ring. “If it’s an outdoor project, you might do a little better if you find a contractor who doesn’t have much work in the early spring, late fall and winter, and wants to brave the elements so he can keep his crews working a bit longer than they might normally,” said Webb. Inside work, such as a kitchen remodeling project that can be done anytime, also might prove less expensive if you do it during the dead of winter. You might find someone “willing to cut you a deal if you wait until January to get the work done,” he said.

Of course if you live in the sunny South, you might not get a break. “Places where you can work anywhere year-round usually are not places where you see price differences,” he said.

Here’s a sample of just what some popular remodeling projects are projected to recoup in 2015 at resale depending on your market. Click here for Remodeling Magazine’s entire project and market analysis.