design rOI - Maximizing your investment

Renovating your home with ROI in mind

A few months ago I saw a listing come up on MLS. It was fully renovated top to bottom. The kind of renovation that runs you north of $350K. It was listed right at the resurgence of the fall Toronto market and fully renovated homes were flying off the shelves, and yet there it sat, stagnant like the water in my backyard fishpond when the pump breaks. So what happened?

Understanding the aesthetic preferences and design standards of the neighbourhood you are purchasing in is critical for ROI when buying a fixer upper or a home that you plan to renovate or improve.

Design is not a one size fits all approach and aesthetic preferences vary significantly neigbourhood by neighbourhood and city by city. In this situation, the home had been designed with entirely the wrong aesthetic of the area so buyers were looking at it, despite the top to bottom renovation, seeing dollar signs on a re-do to align to their tastes.

A prospective client asked me about design ROI. She had fallen in love with a home we transformed in the Upper Beach, and was house hunting, hoping to replicate the transformation in the west end of the city. In her area of interest, there were many rich and diverse cultural influences including a strong Italian influence. The listings that sell quickly and for top dollar boast beautiful single slab tile installations – black quartz tile spans the fireplace and deep marble veins make for showstopping countertops. There’s just one problem. This client had been viewing Beach homes – an area known for light and airy spaces that are contemporary with a nod to character and history – herringbone tile can be found in every hot listing, tied in with classic white kitchens that offer a contemporary twist; a stark contrast from the design vibes of the market she was exploring.

If you’re planning to buy a home, fix it up and live in it for the next twenty-five years or even a home you plan to love and adore for the next fifteen years will render your renovations outdated, so in these two cases – renovate away! Do as you please, pick finishes that make your heart smile – worry not about the local market.

BUT if you are buying a home to improve or renovate with an intent or possibility of selling in the next 3-7 years, return on investment is incredibly important to making strategic real estate decisions, unless you’re the kind of person who pulls in $1M annually, has 3 cars, a yacht, and two cottages, in which case, why are you reading this blog?! For the rest of us, every real estate transaction should increase leverage so that as your life grows, your real estate decisions are growing with you – building a prosperous future where you might start out living in a 2-bedroom row house as a young professional, but are able to grow financially into a 3 bedroom detached at the point that you grow your family. It’s not just about jobs and incomes; your real estate decisions have a lot to do with it, and your design decisions within your real estate decisions are an integral part of this.

Understanding design roi:

ROI or return on investment is a calculation of your net profit on a real estate investment. Simply put, this ensures that you have a margin of profit in the money you invest. For example, you buy a home for $1.1M, you put $250K into renovations and ideally, your home is now worth $1.45M ensuring a strong ROI.

Design ROI is a concept that is not discussed enough. Renovating a house top to bottom won’t guarantee ROI if you haven’t done so with the appropriate buyer demographic and preferences in mind.

your next steps:

When you are considering a fixer upper, pull two types of comparables.

STEP 1:

Target price comps. These should include listings that you feel are comparable to the renovation plan you have in mind. FAST TIP: If you only plan to renovate your main floor and re-do your second floor bathroom, do not look at turn-key renovated homes as comps – they are not. Ensure that you are accurately looking for homes that are true to your renovation plan.

STEP 2:

Design comps. Now that you have target price comps, it’s time to look towards design. You are looking for commonalities amongst listings that sold quickly and for a lot of money. Do they all have the same tone of flooring? Do you notice the same tile choices or backyard landscaping trends. 

STEP 3:

Outline your preferences. What makes your heart sing? Make a list of design preferences, do this room by room – for example, in the kitchen, what colour do you imagine your countertops to be? Are they textured or solid? Do you envision one solid backsplash or a patterned tile? Do you like bold colours or classic white? Do this for each room in the house, and then compare it to the top listings in your area.

STEP 4:

Compromise. If you’ve got a horseshoe somewhere undisclosed then your list will match perfectly to the listings in your area, but if they don’t, now is the time to compromise and here’s the IMPORTANT RULE OF THUMB: put your personal design spin on elements that are easily changed. You love a pop of colour in the kitchen? Don’t embed it in a tile backsplash that you need to change prior to selling, instead make an accent wall with your favourite colour, or even panel your island in this colour on the back only (where it can be easily changed without affecting the colours of the rest of the kitchen). Keep the most expensive and static elements in a vein that is popular with the masses.

STEP 5:

Renovate and reap returns. The renovation process comes with its challenges. For renovation insights and tips on selecting and working with good contractors, check out my other blog posts.

need help?

For 15 years I have been transforming homes – taking outdated fixer uppers and sometimes unliveable hidden gems and transforming them into beautiful homes that add true value to the neighbourhood. They combine character elements with modern functionality. I design every home with my own taste in mind and then use the steps I laid out in this blog to ensure a cohesive fit with the local area. I specialize in assisting buyers in making strategic real estate investments - from renovation and design consultation to coaching on house hacking and ROI.