Andrew Shilling at MarketWatch asked advisers how much homeowners should budget for renovations each year and when it makes more sense to move than to keep improving. Annual renovation spending in the survey ranged from $19,481 to $88,369, and most homeowners do not have that kind of cash sitting idle.
My recommendation was structural. The homeowner should fund a dedicated home reserve, budgeting 1% to 3% of the home's value per year, in a separate account that exists only for the house. On a $500,000 home that is $5,000 to $15,000 a year. Some years it accumulates. Some years the roof takes all of it. Either way, the money is there when the repair arrives, and the emergency fund that protects the household from a job loss does not get raided for a water heater.
On renovations, the article's warning is one I repeat constantly: don't over-improve. Every neighborhood has a price ceiling, and money spent pushing a house past it does not come back at sale. A $150,000 kitchen in a $400,000 neighborhood is a $150,000 gift to the next owner.
The move-or-improve test is the total: if the renovation you want, plus the deferred maintenance you already have, exceeds the gap between your home's value and the ceiling for the street, the better answer is usually a different house. Renovate for the way you live. Do not renovate to become the most expensive house on the block.
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