When considering a major remodel, many clients are concerned with their return on investment. This is especially true if they only plan on being in the home for one or two years. In this case it may be wise to shy away from major projects if an immediate financial return on your investment is a priority. For those clients that plan on staying in the home for 5-10 years or longer, it is a whole different calculus, and I recommend doing what brings you the most enjoyment for your budget. According to TodaysHomeowner.com, the average return on investment for a renovation project is 69%. Kitchens, baths, master suite and family room additions have the largest rate of return. https://todayshomeowner.com/home-finances/guides/roi-of-remodel This Old House also has an interesting article regarding projects with the highest return of investment. Similarly, they state kitchen remodels and additions have the highest ROI. www.thisoldhouse.com/home-finances/21015466/renovations-that-give-you-a-return-on-your-investment
What these reports don’t consider is how home values appreciate. This varies by location and for this information I looked to Zillow www.zillow.com/home-values/135/cobb-county-ga According to Zillow, the average home value in Cobb County, Ga was $281,660 in 2019 and currently sits at $447,126. Year to year, the increases ranged from 3% to 23%, but on average they increased by just over 5% per year. I can personally vouch for this as my home value has increased on average, by just over 5% per year in the past 25 years. There were and will undoubtably be ups and downs, but historically it would seem to be a safe bet that a home in Cobb County is going to appreciate by roughly 5% per year on average. Using that assumption, the average $447,126 home today should be worth roughly $570,659 in 5 years or $728,321 in 10 years. That’s a net gain of $123,533 or $281,195 respectively.
If you are the “typical” Cobb County homeowner and have a home valued at $447,126 and your contractor tells you that your dream project is going to cost $300,000, a natural and understandable reaction may be “whoa! That’s almost ¾ of what my house is worth!!”. And you would be correct. Today. However, assuming a modest 69% return on average, your house would be worth $647,126 after the project is completed. You aren’t $300,000 in the hole, but “only” $93,000. If you plan on staying in the home for 10 years, that equates to a net investment of $9,300/ year to enjoy the new space. It would appear reasonable to expect to recoup the remainder of the money when selling the home years later. A common concern is that “my neighborhood won’t support that price”. That may be true today or next year, and I would recommend consulting with a local knowledgeable real estate agent to better understand your unique market. Consider however, that in 8 years of appreciating at 5% per year, the home would be worth $660,609. The appreciation of the house’s value, as is, will have potentially paid for over 2/3 the cost of the project in just 8 years. That does not include the value added from the project. Because of the project, the home could very well be worth $900,000 or even $1,000,000 in 8 years, at which point the investment has more than paid for itself. In the meantime, you get to enjoy the new space and rest relatively assured that given time, appreciation will cover the cost of the project.
If you’re ready to discuss investing in your home today to start enjoying for years to come, contact us at 678-560-0600 or fill out the contact us page at Custom Dwellings.com