Return on Investment (ROI)

There are different reasons for doing renovations or improvements on your home, like preparing for sale, making additions, doing repairs, and changing the looks. No matter what the reason, all work is either for investment or for personal reasons. When the work is for an investment, for immediate sale, future sale, or just to add value, you need to be careful. Not all investments give a positive return.

When you spend money on a house to increase its value, you spend X dollars on the work and the value of the house goes up Y dollars. This is where you calculate your "Return on Investment" or ROI. Most work won't give a positive return right away, but since house values are always rising, at some point it may become positive. For example, you might spend $10,000 on a front porch and that may only increase the current value of your house by $8,000, but when the house value goes up 50%, that porch will make a difference of $12,000. As a general rule, most major changes won't be recovered right away, but with the rate at which house prices are climbing, it may not take long to become a positive (financially) investment. Small jobs on the other hand are more likely to be profitable investments. Fixing or updating things can add value for little cost, and can make a house much easier to sell. The value of your home is also affected by the value of the homes around you, so if your home is worth less than the ones around you, your ROI is generally higher, and if your home is worth more than the ones around you, it's generally less.

Any job, big or small, is worth the investment if it's what you want done. Most of us spend more time in our home than anywhere else, so we deserve to have it be the home we want, our dream home. Whatever changes you want, if you can afford it, you deserve to have it done.

The following information is from the "Appraisal Institute of Canada" website. It gives an idea of the ROI you will get with different types of work.

2004 Renovations and Home Improvement Survey

Results of the AIC 2004 Renovations and Home Improvement Survey have been tabulated. Based on the informed opinion of Canada’s professional fee appraisers, the three most frequent renovation improvements undertaken by homeowners, which provide the highest payback potential are:

  1. Bathroom renovation
  2. Kitchen renovation
  3. Painting - interior/exterior

This information is valuable for homeowners to measure what effect home improvement projects may have on the resale value of their homes. Consumers should be aware that home values and returns on renovation investments are dependent on many factors such as the location of the property, i.e., province, rural/urban, etc. Notably important is the quality of workmanship and materials.

Whether planning to sell or to stay put for a while, consumers would rather have improvements made to the home add as much value as possible. Here are projects for which Appraisal Institute of Canada members projected average payback value ranges.The 20 most frequent renovation projects were:
Top four greatest payback potentials
- Bathroom renovation (75-100%)
- Kitchen renovation (75-100%)
- Interior painting (50-100%)
- Exterior painting (50-100%)
Ten average pay back potentials
- Roof shingle replacement (50-80%)
- Furnace/heating system (50-80%)
- Basement renovation (50-75%)
- Recreation room addition (50-75%)
- Installing a fireplace (50-75%)
- Flooring (50-75%)
- Constructing a garage (50-75%)
- Window/door replacement (50-75%)
- Building a deck (50-75%)
- Central air conditioning (25-75%)
Six lowest payback potentials
- Landscaping (25-50%)
- Interlocking paving (25-50%)
- Building a fence (25-50%)
- Asphalt paving (20-50%)
- Adding a swimming pool (10-40%)
- Installing a skylight (0-25%)

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