Getting a positive return on your renovations

[Dan C.]

So I understand that we typically make our profit when we purchase the property.  However, we obviously renovate the property to make it more attractive, thus, more potential buyers.  I have been researching which renovations add the most value to the resale value of the property, and all I find are figures that show the value added being less than 100% of the project cost.  For example, data that I've found online suggests if I remodel a kitchen for 5k, I will only recoup about 60-90% of that through the value added to the resale price.

What am I missing here? Isn't the point of the renovations to add additional return on your investment, and not cut into it?

[Jon Holdman]

@Dan C. I suspect you're looking at those surveys put out by NAR and others about the return homeowners get from big improvements. There are two key differences between what a fix and flipper does and what a homeowner does.

First, homeowners are often replacing something that's functional with something that's better.  In many cases very specifically designed for their needs.  Rehabbers are replacing something that may be completely unusable.  That generates a higher return.  Replacing an OK but dated bathroom with up-to-date fixtures won't generate the same returns as building a good bathroom where the old one is complete junk.  Rehabbers make the project match the neighborhood.  Homeowners (me included) often go beyond that.

Second, homeowners pay "retail" for improvements.  There's a lot of markup in that business.  Rehabbers are using their own crews to do this work so a bunch of that markup goes into their profit.

I also believe you need to take those surveys with a grain of salt.  I think there's a bit of "See what a money loser it is to improve your existing house.  Sell it and buy a new one." in those articles.  Like stock brokers, real estate agents make money from transactions.   So they want to encourage transactions.