Home Renovation Return on Investment: 3 Returns Nobody Tells You

Download the FREE Three Returns WorksheetCall in and leave a question or topic you would like covered!530-289-6368Everybody wants to know the home renovation return on investment before they build. Almost nobody knows what to do with the answer.

Bill Reid, residential construction expert with 35+ years of experience, reveals why return on investment isn't one number — it's three. And until you separate them and rank them for your own life, every design decision in your project is going to be harder than it needs to be.

WHAT YOU'LL DISCOVERThe three types of return that drive every home renovation project. Financial return is what the market gives you back at resale. Livability return is what you get from actually living in the improved house — years of mornings in a kitchen that works, space that fits your family instead of fighting it. Functional return is what problem the project solves: the failing roof, the parent moving in, the stairs that stopped working for someone in the house.

Most homeowners mash all three into one undifferentiated feeling called worth it. That's the problem. You cannot rank what you haven't separated. And a construction project is nothing but trades. Every single decision from schematic design through the last punch list item is a trade. When the estimate comes back high and something has to give, people cut whatever is easiest to point at — whatever the last person mentioned, whatever hurts least in that meeting. They don't cut according to priority because they never built one.

How financial return actually works — and why it isn't what most people think. An appraiser doesn't add up your receipts. They look at recent sales of similar homes near you, adjust for differences, and arrive at a number. They're measuring what the market pays for what you now have. And those numbers can be very far apart.

Your neighborhood has a ceiling. There's a price band that buyers in your area have demonstrated with actual closed sales. As your project pushes your home toward the top of that band, each additional dollar converts into less and less value. Push past it, and the conversion stops almost entirely.

The technical term appraisers use for overbuilding: super adequate improvement. A super adequate improvement is one that costs more than it contributes because it's more house than the market around it is willing to pay for. And here's the part that ought to stop you cold: super adequacy is classified as a form of functional obsolescence. T