We all dream of having the nicest possible place to live one day. It’s human nature after all to want the very best and more for loved ones and ourselves, which is reflected in a variety of statistics. Houzz, a prolific Forbes contributor well versed in housing statistics, discovered a sizeable increase (12%) in redecoration projects between 2012 and 2013 across a sample of 100,000 US homeowners. From their extensive survey, it was discovered that 84% planned to redecorate while 40% wished to remodel in the foreseeable future. Even with the self-selection bias inherent to such a survey and possibility that some users in the former category may also be in the latter, these figures are impressively high. On the other side of the world, Roy Morgan discovered that 8.4 million Australian homeowners in 2017 had done some kind of renovations in the last 12 months. In all honesty though, it’s unsurprising.
Consider this. You’re one half of a young couple wanting to buy your own home but can’t afford to do so normally. So, the two of you buy an exceptionally cheap yet damaged house, do it up for an exorbitant amount and still save money with a valuable asset to your names at the end of the process. Seems like a pretty good deal, but let’s try another scenario: you’re a seasoned investor and want to make a sizeable profit, so you buy up reasonable houses and make them into something special with a bit of remodelling. A strategy as old as the housing market to be sure, but a successful one. Perhaps instead you’re a seasoned homeowner with children that have left the coop looking to increase the value of that roof over your head. All three of these cases seem to have exceptional merit to them, but in each case one must consider whether or not remodelling or renovation are more feasible despite all the potential benefits.
To begin with let’s break down what those stats mean. According to Northfield Construction, remodelling is when you, “change the structure or form of something.” Conversely, renovation is merely restoring, “to a good state of repair.” To some, changing the structure or form of something might be considered an act of restoring to a good state of repair, but therein lies the crucial difference: the extent to which a home might be damaged or in need of repair is highly variable. As such, “a good state of repair” might only constitute a fresh coat of paint. Michael Yardney from Property Update clarified the statistics on renovation revealing this to be the case, determining that of those 8.4 million Australians renovating their homes, 3.7 million contributed to mere painting of walls, windowsills and more. Not to diminish the skill and effort that goes into painting, but when compared with more severe operations like floor stripping that require highly trained professionals like those from Totally Stripped, it’s a relatively minor undertaking. From this, the age-old lesson about statistics holds true: the numbers might irrefutable, but how they’re interpreted can be entirely fictitious. Therefore if you’re part of that aforementioned young couple, you ought to consider what’s needed rather than what’s wanted by others. After all, your new home might only require a dusting off and some fresh paint. Similar advice could be given in equal measure to the savvy investor and seasoned homeowner, but to these people a more lucrative yet presently expensive option is available: remodelling.
Unlike its frugal cousin, remodelling can consist of grandiose changes to a home that may take $75,000 US and 10 weeks for a single room. This sort of thing, although expensive, increases the immediate and subsequent valuations of the home over time, but that’s precisely why younger homeowners should probably avoid it. After all, the last thing you need to be doing when trying to get your foot in the door to life is narrowly doing the same with a place to live. A far more sound investment decision for younger people would be in a highly diverse portfolio of shares. A senior analyst from Montgomery Investment Management summarised the reasons why quite nicely, comparing an investment property to a company whose operating cash flow exceeds the servicing of debt and other regular costs. Simply put, a property cannot take in regular inputs that can be processed and sold for profit, whereas a business can.
Neither home remodelling nor home renovation succeeds in the same way a business does. The only advantage investing in a house has over investing in a company is the fact it can be rented out to generate a steady revenue stream, but that’s only the case for an investment property. If you are part of that young couple trying to live in this home, it’s either going to get crowded or simply be far more economical to live in rented accommodation and put the savings toward a stock portfolio. However, if you’re in one of the other two categories and can afford to either flip or rent out the renovated property, renovating and even remodelling can be a sound decision, as shelter is a need common to all people. Regardless of the stock market’s health, everyone will always need places to live. Therefore, the decision to renovate or remodel should be primarily based upon your current affluence. If you’ve already got that stock portfolio and a place to live, then remodelling and renovating homes is a safe bet. If that isn’t you and money’s tight, consider other investment opportunities that may be far less time consuming and ultimately more lucrative.