The cost and value of a home renovation
I’ve been trying to decide the past few months whether I should renovate my condo. In this post I want to think through this decision and also analyze it as a financial decision.
Condominiums create a slight problem for the DIY-er, especially when they are smaller. With only 1 bathroom I can’t take weeks/months to complete a renovation unless I want to clog up my kitchen sink.
The HOA documents are also quite specific about having only licensed contractors performing the condo renovation. This is due to the fact that one error will spell disaster for not just my unit but also my neighbor’s. A recent renovation error on a 3rd floor unit in my building flooded and destroyed the ceiling in the common area – I don’t want to be that guy.
As my good buddy always says, as an orthopedic surgeon he will never climb on his own roof to do repairs, the risk is simply too high. Doing cosmetic work on the condo is fine, but crossing the drywall would simply pose too much of a risk, in this case a financial one and not a physical one.
My previous renovation
When I was in residency in Los Angeles, 2006, I bought a condo in San Diego which needed major renovation. I got a great deal on it, $288k on a short-sale.
The entire kitchen had to be renovated because of water damage. the bathroom needed some work as well. I figure I spent around $15,000 to renovate the entire thing which included new appliances, paint, drywall, running gas lines, routing electrical wires and resurfacing cabinets.
The condo renovation took me 2 years to complete but mostly because I would only have the occasional weekend to take Amtrak down to SD to work on the condo. Still, everything took much longer than expected.
I was fortunate that my mom was helping with one of the projects of running a water line to install an ice maker for the new refrigerator. While we were installing it I managed to bust one of the water lines and if she wasn’t there to shut off the main water supply line then I’m sure I would have had to swim out of that condo.
Why renovate this condo
The bathroom in this condo is from the 30’s. The cast iron tub and sink have major rust with the porcelain chipped off in the expected locations. The plaster has bowed out where there was previous water damage and the paint, undoubtedly leaded, is peeling and hiding some dark stains under it.
Because of the humongous wooden window in the shower/rub area, I have to draw a shower curtain on an oval shower rod in order to prevent water getting on the walls or window. This makes for one of the most uncomfortable shower experiences.
The condo is a studio which means no separate bedroom. However, there is this smaller room, maybe 12 sq-ft, which has a massive window and taken up by a massive washer and dryer unit.
I was thinking of getting a 110V washer/dryer combo, which is 1 machine that does both the washing and drying. These aren’t cheap, and at nearly $2,000 they aren’t even the most effective at drying – though they are energy efficient.
The kitchen is quite functional right now and even though it has no cabinets – yes, no cabinet space in the kitchen, my refrigerator is located in the closet. Let me repeat that, the fridge is located in the closet with my clothes. That’s how the condo was designed, there is no space to put the fridge in the kitchen area.
The renovation plan
The plan would be to remove the damaged plaster in the bathroom, seal the walls, add tiles. Ideally, I would turn the tub into a walk-in shower and replace the wooden window trim with PVC so that I can get water on it without worrying about rotting out the wood.
The floor in the bathroom can stay. The toilet has seen better days but I would reluctantly keep it. The sink would have to go because it has rusted quite a bit and at 80 lbs I don’t trust it to stay up there in case of an earthquake.
My little washer/dryer room would be rescued and turned into a little reading room.
The kitchen would then get a single washer/dryer combo unit implanted in it. The sink would have to go because it looks like it contracted Ebola.
I would then have to cut back the wall that separates the closet from the kitchen in order to make the closet smaller and give some of the space to the kitchen. This would allow me to have the fridge inside the kitchen – since that’s what … normal kitchen have.
It would cost around $12,000 to complete the bathroom. Online remodeling calculators are helpful to guide you in the right price direction but getting in-person quotes is the best way to go.
I would need to spend another $6,000 to move the washer/dryer, prep the reading room and pay for the new combo unit.
To fix the fridge situation, it would cost me another $2,000.
In total, that’s $20,000 to renovate this condo and make it much more comfortable and increase its usability.
Now that we discussed the cost of this renovation, let’s discuss the value. The value would be measured both in how much more I would enjoy this condo as well as how the renovation would affect the resale price or rentability of this condo in the future.
I learned from a very good friend back in the day that you should always have your home in a sellable or rentable condition. My unit barely meets that standard and though I could slap some paint on it to hide some of the cosmetic issues, it would be a hard unit to sell outside of this seller’s market.
I bought the condo for $142k cash 2 years ago. It would sell for a face value of around $185,000 with a little paint touch up. At 350 sq-ft and being a studio, it might sell for as much as $200k if I could find the right buyer. In my market, no studio selling under $200k in my neighborhood remains unsold.
Spending $20k on this condo would perhaps increase the face value by $15k. I say face value because I would have to factor in realtor fees and closing costs.
How about the personal value that I would experience? Setting aside the extra financial value I would gain from this renovation, I would experience more luxurious showers, gain an extra room in the condo and gain easier access to the fridge.
The decision to renovate
The decision to renovate a primary residence is often an elective decision. The majority of renovations that are done in the US are cosmetic and though they add a little to the value of the home, they don’t fully recuperate the costs.
Especially when it comes to smaller renovations such as cosmetic touch-ups of kitchens and baths, there isn’t often any sizeable gains. Compare that to additions or completing unfinished attics or basements which can exponentially increase the value of the home.
A financially savvy friend recently bought his primary residence at $1.3 million near the beach in Los Angeles. He spent around $400k on major renovations and upgrades which took 11 months. The house was appraised for $2.3 million after the work was done.
We should be making these renovation decisions based on our financial goals, our current financial situation and whether the value of the home will increase from the said renovation.
A household with income earners who have reached their financial goals shouldn’t worry too much about spending any disposable income on a home renovation that would bring them more personal value than home value.
However, someone who is in the wealth accumulation phase or still has a sizeable debt burden would likely only feel more pressure from the cost of a cosmetic renovation.
A renovation that drastically increases the value of a home can make sense but I find that such decisions are best made by those who are savvy in such matters. Furthermore, it seems that homes in particular neighborhoods respond better to major renovations where the buys have enough disposable savings to pay for those luxuries.
My personal decision
I’m still a bit torn. The financially flagrant side of me could care less to spend $20k for this renovation. The environmentalist in me doesn’t want to create a ton of waste and mobilize a ton of chemicals just to improve the cosmesis of my condo.
In the past I would just work extra to earn the money I needed to spend on whatever I wanted. I could work a month straight and make more than enough to pay for this renovation but I am much more stingy with my free time, these days.
For now, I will hold off on this renovation. It’s likely that I will break down and just go with it. If that happens, I will be paying cash for this and I will also document the process.
Delaying the decision
Unless you’re running a code or have several cops holding you down, one of the best things you can do is buy yourself some time before deciding what you should do next.
Having more time means that you are allowing your subconscious mind to deal with the decision and hopefully inviting in some serendipity to lead you in the right direction.
The longer I can wait on making this decision the longer I will hold onto my money which means the more money I will make. My money rarely sits around passively collecting dust, it’s always invested and earning dividends.
In the meantime, I might come across a fantastic contractor, I might find an ingenious way to do the renovation myself or perhaps stumble onto a whole new options which wasn’t previously on my radar.