Ottawa Renovation Investment Guidelines

Whatever renovations you decide on, there are a few investment guidelines you should consider. Before looking at specific renovations, it's essential to understanding market conditions. For 2014, Re/Max predicts a 2% increase in sales nationally over 2013 and a 3% rise in home values. CMHC is roughly in accord on sales growth, but predicts prices will rise at the rate of inflation: about 1.9 per cent. The average price of a resale home in Ottawa was up 2.1% at $358,000 in Febuary 2014. (see Housing Now – Ottawa and Housing Market Outlook – Ottawa) Sales are expected to firm up by the Spring. Demand in the existing home market has been strongest in Ottawa West, which includes the West End, Kanata, Stittsville and Nepean.

With the large amount of inventory for sale and an increase in price that closely mirrors the rate of inflation, homeowners have to be smarter than ever when renovating. A number of variables should be considered when determining what renovations make sense from an investment perspective within the Ottawa market. Pricing homes to obtain top dollar is based entirely on how buyers view and perceive the value of your property, regarding specifically:

1. Neighbourhood
2. Community
3. School district
4. Specific street
5. Architectural style
6. House and lot size
7. House condition
8. Market objections
9. Market expectations
10. Extra market appeal

Bringing a House Up to "Standard"

Ensure home upgrades are in keeping with the standards of a neighbourhood. Buyer expectations for a particular city such as Ottawa and specific neighbourhoods play an important role in determining home value. Many homebuyers expect to see certain upgrades or, at minimum, a downgrade in the asking price if a house is not up to “standard”. Replacing wall-to-wall carpeting with hardwood, upgrading main entrance stairways, and installing low-maintenance, energy-efficient windows makes it more likely to meet buyer expectations, and can result in a higher sales price or a shorter time on the market.

Doors and windows count for a good portion of heating/cooling loss. Upgrading windows and doors goes a long way towards increasing a house's efficiency. This upgrade will directly reduce the average monthly bill to heat and cool the home, making it more attractive to buyers.

By upgrading to standard, homeowners can expect a full return on investment in terms of increased home value once the renovation is complete. Upgrading to standard is a safe investment, and every dollar spent will usually be recovered, provided the work, including the design, is done properly. Homeowners that have upgraded to standard can expect to receive better offers and that their house will be on the market for a much shorter time than it could have been.

Avoid Over-Renovating

Homeowners don't want to have the most expensive, "big hair house" on the street. If the average house price on a given street is $500,000, and the house being renovated already stands at a similar value, renovating to an $800,000 value is high risk. In most cases the homeowner will not recover the investment, especially in the short term. If a home is well under the average house price, bring it up to market value or slightly above is an ideal investment. As is always the case, some neighbourhoods performed better than others. For example, Westboro has become a hot real estate market and homes are in high demand thanks to Westboro Village’s lively street scene, alive with a rich art culture, music festivals, boutiques, restaurants and coffee shops across Richmond Road and Churchill Avenue. Adding an extra $100,000 value to a home in this market is a safer bet.

Avoid Extremes

From an investment perspective, a home should be designed to a homeowner's taste while also appealing to a wide demographic. Renovations that exploit short-lived trends in design and decor may be at odds with what prospective buyers are looking for in the long run.

Quality Matters

When it comes to renovations, quality matters. Poorly constructed and poor quality renovations will have little impact on a home's value. Shoddy work may even reduce the value of a home, especially in the Ottawa market.

Sound Advice

Dramatic improvement to curb appeal is a strong factor in raising the perceived value of a home in the eyes of prospective buyers (Click on image to see the before photo). Remodelling a kitchen or bathroom can also bring a high return on investment according to the Appraisal Institute of Canada.

Kitchen and bathroom remodels always ranks within the top 10 best investments to increase home value. Attic bedroom and basement renovations produce higher-than-average cost-value ratios, often as high as 75 percent. The higher average costs for these projects are offset by the fact they remain the least expensive way for home­owners to add living space.

CastleCorp has renovated older homes in the Ottawa area that do not benefit from a downstairs toilet. Homeowners with such a property should seriously consider creating a toilet under the stairs or adding a small extension to fit one in. Such an investment has proven to pay big dividends when it comes to selling a property; sellers are guaranteed to recoup more than the investment required.

Realistic Budgeting

The key to all major home improvement projects is realistic budgeting. Increasing the value of a home through renovation offers an excellent price-value-ratio and investment return. But homeowners should not be afraid to scale back remodelling plans to fit their budget, either by reducing square footage or by trading savings on some items to afford more higher-priced items they deem essential or desirable, provided these items remain in demand long term. Another option is to have the work performed in phases to spread the cost over time.

Wait or Start Renovating?

Renovation costs are going up. With construction inflation running at about 5 percent and the cost of materials increasing, in most cases it makes economic sense to start renovating right away. However, other factors come into play, such as whether a homeowner has the money or needs to borrow. If money is available from savings to renovate, homeowners will save money by starting sooner than later. Even if a homeowner need to borrow, at today's rates, it often makes sense to start right away, provided the total cost of the loan including interest to renovate does not exceed the increased cost due to inflation to renovate in future.

A home equity line of credit may be a good financing option for homeowners if they've built up at least 35 percent of equity in their home. It's not for everyone, but it can be a great solution, depending on circumstances. Right now, ING Home Equity Line of Credit is offering an interest rate of 3.65 percent. Homeowners planning to renovate may be able to arrange similar rates or better through their local bank. Be sure to shop around for the best rate when financing a renovation. At such a low interest rate, most people save money by renovating now, rather than later, especially with the expectation that interest rates will increase in future should they have to finance to renovate at that time. Most importantly, by renovating today, rather than tomorrow, homeowners begin enjoying their dream kitchen, bathroom, addition or other renovations right away.

Being Smart About Renovating

Homeowners should be smart about the home improvements they make to increase the value of their homes. Your investment shouldn't just improve the quality of life; it should also make economic sense. While averaging is an important tool when drawing broad conclusions (see tables below), it also can obscure the fact that some projects perform much better in the relatively stable Ottawa market. For example, many projects in the Ottawa market return well over 90 percent in cost recouped. For example, decks, windows, hardwood floors, 1/2 bathroom and replacing an entry door can easily achieved a cost-value ratio of more than 100 percent, if designed well and done right.

As a general rule of thumb, the return on investment for home renovation will increase while markets are rapidly appreciating and the longer the investment is held. In other words, the longer a person stays in their home, the easier it is to recover the full cost of most well done renovations.

Source: Appraisal Institute of Canada’s latest Home Renovation Survey

Keep these investment guidelines in mind when thinking about renovation:

• Make sure essential repairs are completed before other home improvements.
• Renovate to bring a home up to standard.
• Select renovations that enhance curb appeal.
• Choose improvements for which the market is willing to pay.
• Keep improvements consistent with the standards of the neighbourhood.
• If you do it yourself, do it right. Partially completed or poorly completed renovations will detract from the value of a home.
• Consider energy-efficient improvements to reduce the operating costs and improve comfort.

How the value of a renovation or remodelling project is perceived also depends on a variety of factors that traditionally affect home values, including the condition of the rest of the house, the value of similar homes nearby, and the rate at which property values in the surrounding area are increases.