The pandemic has caused many people to rethink where they live and what they want and need in a home.
In fact, nearly 40% of Americans are considering moving this year, and a third say the pandemic completely changed what they want in a house, according to a survey by Lending Tree.
If it is not an option for you to buy a new home, and you find that your house no longer suits your needs, you have probably considered renovating.
Maybe you could take out a wall and create a more open space. Maybe finishing the basement wouldn’t be as difficult as getting involved in the hectic housing market.
But there’s a lot to consider if you’re weighing your options between buying a new home and starting a new renovation project.
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If you are considering renovating, you are not alone
The housing market is a confusing place right now. More homes are finally becoming available, but prices are still up 10% over last year, according to Redfin. And with rising interest rates, it’s not just hard to get on the property ladder now, it’s also hard to try to move up.
“It’s so hard to actually find the perfect house in the perfect neighborhood,” says Eric Finnegan, vice president of research and demographics at John Burns Real Estate Consulting, which provides housing market analysis to clients such as builders, realtors and investors.
“And it’s just gotten harder since COVID. And for a number of reasons, it’s probably going to be tough for the next three to five years.”
And despite the crazy market—or because of it—many people are spending money to remodel their homes.
Renovation activity and spending hit a four-year high in 2021, according to Houzz’s U.S. Houzz & Home Study: Renovation Trends. More than half of homeowners renovated last year, pushing the median spend on renos up 20% to $18,000.
In 2020, Americans put $420 billion into remodeling their homes, according to the National Association of Realtors and the National Association of the Remodelers Industry 2022 Remodeling Impact Report.
And millennials play a big part in that.
More millennials choose to renovate
One of the ways millennials are getting the homes they want is by creating them.
Normally, an entry-level buyer would trade up to a larger home after about five to seven years, says Finnegan.
But his research shows that many millennials are deciding to stay put and remodel rather than move. He calls it the “trade up in place” phenomenon.
“Since it’s so hard to find a house right now, they say, ‘OK, I’m not going to trade, I’m going to stay where I am. I’m going to stay here another 10, 15, 20 years and just upgrade everything.”
More renovations, more problems
But taking on a remodel comes with its own set of problems.
Finnegan says about one in 10 households is involved in a large-scale remodel, and as the demand for supplies and labor increases, so do the costs.
“Remodelers basically have to raise their pay rates for their workers to keep them from being poached by remodelers across town, that’s part of the dynamic,” Finnegan says.
Add to that supply chain disruptions, high demand for materials and, more recently, the high cost of gas and diesel.
“Now [remodelers have] been booked out in 2023. So they’re actually just looking to focus on this part of the market that can afford redevelopment projects now. And then they are actually able to raise their prices, some of them for the first time in a while.”
Waits for contractors are several months long, and price offers change all the time.
“Usually when a remodeler makes an offer, they’ll leave it open for maybe 30 or 45 days because the homeowner gets bids from a few different contractors,” Finnegan says. “This remodeler is shortening the bidding window because their prices are going up.”
How much value do these projects add to your home?
The upside is that remodeling can add a lot of value to your home, and there are some projects in particular that get a big return when it’s time to sell.
Refinishing your hardwood floors has a cost recovery of about 150% according to the remodeling impact report, while adding new hardwood floors has a cost recovery of nearly 120%. Insulation can give you a 100% return on your investment.
“Every dollar you put in, you get back if you were to sell that home,” says Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.
At the lower end of the cost recovery spectrum, adding a new primary bedroom has a 56% return, a new bathroom is 63%, while kitchen upgrades have a 67% return.
While those returns may not be realized for years, depending on when you sell, there’s also a joy factor to consider, Lautz says. The report also asks homeowners how much joy their changes brought them to their homes.
“Honestly, this year’s iteration of the report, the happiness scores were all a little higher,” Lautz says. “I think people are just happier to have this change and do something with their home that really made them feel good.”
Keep the costs of conversion down
There are ways to keep the cost of a remodel relatively low, says Casey Finn, founder and CEO of DIY Playbook.
Finn and her husband remodeled their apartment in Chicago with no construction experience. They renovated a bathroom, adding built-ins and other custom touches.
“We sold it within 24 hours, we got five offers and one cash offer; we went with it,” says Finn. “And we made about $100,000 just doing a lot of DIY and then selling it , because people just didn’t see anything else like it on the market, because everything was just kind of construction.”
Now they are now on their way to their second home in the Chicago area.
“It’s in a great neighborhood, but it was probably the ugliest house on the street,” says Finn. “And that’s what we were looking for … and it’s like we see the potential here.”
For the most part, Finn and her husband do a lot of the work themselves, but hire out when they need to. For specialist jobs, such as electrical and plumbing, they hire out to ensure it is done correctly with the right permits.
“But when it’s just cosmetic upgrades or tiling or woodworking, things like that, we take on those projects ourselves to save money,” she says. “And to just get the satisfaction that comes with doing projects yourself.”
Make a budget
Finn says planning is the most important part of any project. The first thing she does is create a budget with a 10% to 20% buffer for what could go wrong.
“People don’t talk numbers. And it’s really helpful to know how much a kitchen renovation is going to cost.”
It also helps you understand where you are saving money.
“We did, for example, some built-ins. And I got an offer from somebody, I think it was maybe $7,000 to do it. And I think we did it for about $1,500.”
She adds that this was before timber prices skyrocketed.
“We saved so much money doing it ourselves.”
Do your research and plan ahead
The internet these days is a treasure trove of information on DIY projects. Between Instagram, YouTube, and blogs, there’s almost nothing you can’t learn.
“I’m a blogger, but I read other people’s blogs and I’m like, ‘Wow, that’s how they did that build, I want to put my own spin on it,'” says Finn.
She is also not afraid to ask the professionals.
But they have also shared in the struggles of renovating during this time. After experiencing delays with a kitchen remodel and waiting for cabinets to arrive, Finn says she booked her contractor months in advance to help with a bathroom renovation.
For Finn and her family, remodeling has been the right decision. She estimates they’ve added hundreds of thousands in value to their home over the course of their renovations, and that’s not including the “joy factor.”
“But we also spent a lot of money,” she says. “You can’t expect to get every dollar back, but when you’re able to enjoy it, it makes such a difference.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.