Home Improvement ROI
Did you know that US homeowners spend more than $300 million on renovations and repairs?
The right home improvement project can bring about good returns and help recoup a portion of the expenditure when you sell the house. However, with the wrong upgrade, on the other hand, you can easily lose money.
Our article talks in detail about everything you need to know about home improvement ROI, projects with high ROI, renovations with low ROI, and much more.
What Is the Return on Home Improvements?
Return on home improvements or ROI is used to determine the renovations that add more value to the property. A good real estate ROI depends on the:
- Cost of the Project
- Type of Property
The following formula is used to calculate the ROI:
ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment
On average, the ROI for home improvements is around 71% which is the highest in the last decade. In 2020, it was approximately 63.7% which could be attributed to the ongoing coronavirus pandemic and the cost of the materials.
Is Remodeling Your Home a Good Investment?
Remodeling most certainly always boosts the ROI of your home. But for it to be a good investment, it should address a design flaw while making things more functional. Brand new windows (vinyl), wood deck, bathroom, and kitchen upgrades tend to have a high return for your investments.
On the other hand, it may not be a good investment if your home renovation places it well above the average of the other homes in your neighborhood.
How Much Do Home Renovations Increase Value?
The payback is approximately 56% of the average cost of the remodel. But, homeowners who do expensive renovations generate relatively lesser returns in the resale value of their home.
How Does Home Improvements Affect Resale Value?
Home improvements always add to the resale value, some more than others. Ideally speaking, remodeling should be done more for personal comfort and enjoyment rather than for the resale value, unless you are a house flipper. They should add style, comfort, and design.
Home improvement projects that add value are those that others will pay for when it’s time to sell. Anything outdoors, electrical, minor cosmetic improvements, energy-efficient cooling, or heating system increase your house’s resale value.
However, you may want to consider the below factors:
- Upgrades should be in sync with the house.
- The changes should conform with the neighborhood.
- Improvements to a newer house will not have as much impact as to an older one.
- Improvements should be in line with the price range of your home.
- Luxury upgrades always do no bring in as much value.
- Room extensions that do not fit with the rest of the home.
Home Renovations That Has More Return on Investment
The most significant returns are usually seen in things that increase curb appeal, such as outdoor living space, etc. And the least returns can be seen with interior projects.
According to a Cost vs. Value report in 2018 by the Remodeling magazine, here are a few home improvements and their ROI:
- Manufactured Stone Veneer – 97.1%
- Entry Door Replacement – 91.3%
- Deck Addition – 82.8% (for wood)
- Minor Kitchen Remodel – 81.1%
- Vinyl Siding – 76.7%
- Universal Design Bathroom – 70.6%
- Bathroom Remodel – 70.1%
- Roof Replacement – 68.4%
Additionally, the more costly the upgrade is, the lesser it adds to the market value. So it is better to invest in expensive upgrades only if you are planning on enjoying it and not selling it in the next three years.
Features that Add More Value to a House
Many projects add value to your home while reselling and also to improve the quality of life. By adding them now rather than later, your family can enjoy the benefits.
If they are green energy upgrades, not only do you start reaping the benefits as they are completed, but you also recoup the expenditure through federal tax incentives.
- Energy-Saving Appliances
Replace old appliances with star-rated, energy-saving ones. They use less power and help save money. Additionally, they are good for the environment too.
- Fresh Coat of Paint
One of the cost-effective and simplest ways to brighten your house is through a fresh coat of paint. New paint in modern colors can update the look and increase the return. Moreover, it doesn’t cost much, especially if you are painting yourself.
- Finish Your Basement
Adding square footage to your homes can be pretty beneficial, but they could easily spin out of control. Instead of adding a new room, you can convert your basement into a family or a game room.
- Attic Spaces
Attic spaces work well as craft rooms or game rooms, especially if you have a high ceiling. Or convert it into a space for kids, study, or a playroom.
- Energy Efficient Windows
Energy star-rated windows can help save as much as $500 in heating and cooling costs. Moreover, you can easily recoup 60%-90% of the average cost. And then, there is the 10% green tax credit from the government.
If nothing, upgrade your home with energy efficiency in mind. Ensure that your home has essential insulation. Additionally, you can also save money on energy costs by sealing the leaks and cracks, replacing traditional light bulbs with CFL, programmable thermostats, etc.
ROI on Bathroom Renovations
According to market reports by Zillow, you’ll probably see a $1.71 increase in resale value for every $1 spent on a minor upgrade like painting, refinishing cabinets, new mirror, hardware upgrade, etc. But, while it can attract buyers, converting it into a sale cannot be guaranteed.
The ROI for a bathroom remodel depends on where you live. The Pacific region, including Hawaii, Alaska, California, Washington, Oregon, etc., has the highest returns according to Remodeling magazine’s Cost vs. Value Report for 2018.
If it is slightly dated but in good working condition, it isn’t worth remodeling just to get a luxurious look, regardless of where you live. However, if you have structural damage, mold, etc., you may want to remodel to pass the buyer’s inspection in the least.
Top 3 Bathroom Remodeling Projects for Best ROI
In short, the average return on a bathroom remodel is around 70%.
But to reap the benefits, you need not do a complete renovation. Instead, you can do a partial remodel and convert a dreary bathroom into a modern, stylish, yet functional one that attracts sellers who might not otherwise be interested.
Here are a few profitable projects with a good return on investment.
- Modernize the Backsplash
The right backsplash can redefine the room and add a touch of sleek modernity. You can either go simple and choose classic and versatile tiles or experiment with bold colors, unique shapes, different materials, etc., for the wow factor.
- Slab Countertops
Slab countertops can instantly lift and make it look luxurious. A natural stone countertop lasts long and retains the elegance for quite a long time. For an inexpensive option, you can go for porcelain that resembles the look of a natural stone.
- Universal Design
A universal design is all the rage now. Not only does it benefits buyers with disabilities but also the elderly and the children. For e.x., a curbless shower and space under the countertop allow a wheelchair-bound person to navigate without issues.
Low-Cost Bathroom Remodel Projects with a High ROI
A bathroom remodel need not cost you megabucks. You can achieve a similar look with a few simple cosmetic changes like a new sink or paint. Moreover, smaller and low-cost renovations fetch better ROI than upscale ones.
- Make use of tile remnants to create unique backsplash or accent tiles. The right backsplash can do a lot towards transforming it into a cool space.
- Update leaky and old-fashioned fixtures to ones that are stylish and functional. Sink faucets, light fixtures, drawer pulls, towel racks, etc., can make a big difference.
- Cleaning and replacing the grout goes a long way towards making the room look pleasant. Instead of a light grout, you can define the floor with a dark one.
ROI on Kitchen Renovations
In a recent survey by Realtor.com, 80% of the homeowners had a kitchen in their top 3 list of important spaces. A modern kitchen makes your home attractive for protective buyers and can help you sell faster.
While there is no standard ROI, the nationwide average is 54% on a major remodel and 81% on a minor remodel. Again this differs depending on the location. For example, the returns for a minor remodel are 93% in the pacific region while 68% in IOWA or North Dakota.
But if you plan to sell your home right after the remodel, it is not worth spending thousands only to recoup a portion of it.
How Much Should You Invest in a Kitchen Remodel?
According to RealSimple.com, the remodel should not cost lesser than 5% and no more than 15% of your home’s value. For example, if your home is worth $5,00,000, the average cost for remodeling should be between $25,000(5%) and $75,000(15%). With the above ratio, you can invest the right amount and get a good return on the same.
The national average cost for a kitchen renovation ranges between $13,300 to $37,500.
Major vs. Minor Kitchen Remodel
In a minor kitchen remodel, you work with the existing kitchen without removing walls, changing the layout, or gutting the existing structure. You can:
- Change cabinet fronts
- Update hardware
- Replace countertops and upgrade to a granite or quartz countertop
- Buy matching appliances
- New flooring
In a major kitchen remodel, you’d be renovating the entire kitchen, including moving or removing walls, changing layout, etc. It includes:
- Adding an island
- Custom wood cabinets
- Energy-saving appliances
- New flooring
- Repaint (walls, trim, and ceiling)
- Replace the sink
- New countertops (natural stone)
ROI for a New Garage Door
A study of the real estate market shows that garage door replacement is one of the few home improvement projects that pay you most during resale. It not only increases the curb appeal but also results in a higher return at about 98.3%.
An upscale garage door costing $3,470 can pay you back $3411 during the sale. In particular markets, it can pay more than 100%.
Garage door replacement ranks high due to its relatively low cost and its impact on appearance. Depending on the style, few garage doors can increase the resale value but to 4%.
Home Upgrades with the Lowest ROI
Not all home improvements have a good return on investment. Few actually hurt the home’s value and prevent it from selling.
- Master suite addition – Adding in a master bedroom is one thing, but a full master suite with a sitting area and oversized closet aren’t worth it since it recovers just 59.4% of your investment.
- Bathroom addition – A new addition doesn’t do much for your home’s value since you recoup only 60.0% of your investment. It is worse for upscale bathrooms at just 58.1%.
- Backyard Patio – With a backyard patio, you recover 55.2% of the investment.
- Major Kitchen Remodel – A major remodel recoups just 62.1%, while an upscale remodel, 59.7%.
Home Renovations Before Selling: Do or Skip
Nothing fuels a storm of renovations like placing your house for sale. However, not all upgrades attract sellers and payback. Here are a few home improvements homeowners may want to make or skip when selling their home.
- Oversized cabinets with enough cabinet space, mirrored insides, and hidden outlets are necessary for every bathroom.
- Rather than a complete renovation, simple upgrades like new counters and backsplash to the kitchen net more than 100% profit when selling.
- Reface the kitchen cabinets or replace them if they are falling apart.
- Remove the wallpapers and add a fresh coat of paint in neutral colors.
- Upgraded garage doors have a high ROI of about 98% in some cases.
- Replacing the exterior vinyl siding with a stone veneer increases the curb appeal. But it might cost a pretty penny since vinyl costs $2-$8 while stone $5-$10 per square foot.
- If possible, give your exterior a good power wash.
- Better lighting in the kitchen, bathrooms don’t cost much but make your home pop.
- Deep clean your bathroom and recall the edges.
- Replace the entry door or at least repaint it. It is one of the first things prospective buyers see and is the best chance at making an impression.
- A sunroom yields just 45% off its average cost during a resale.
- A pool is not only costly to install but also challenging to maintain. The ROI is just at 25%.
- Instead of new flooring, you could get just deep clean or refinish it.
- Leave your garage as it is and avoid converting it into a living space.
- Avoid custom upgrades. Not all buyers will share your enthusiasm.
- While curb appeal is important, do not spend too much since it amounts to only 8% of the property value.
- Avoid renovating better than your neighbors since prospective buyers tend to compare homes.
- Do not add square footage or new addition.
- Instead of spending money on a new roof, have it maintained and inspected.
The bottom line is, you probably won’t recover the costs of all the home renovations. But by choosing them with care, you can recoup a good portion of it.
The right home improvements can increase the property value and positively impact the curb appeal, thereby attracting potential buyers. Generally, the project that generates a high ROI is the one that doesn’t need much investment. Before any remodeling project, the homeowners should consider the returns. A local real estate guide should be able to help you with the process.
Assurance Builders was founded in 1998 with a commitment to provide our clients a personal and enjoyable home improvement experience. By offering professional workmanship and quality products, Assurance Builders has earned a reputation for excellent work and quality service. If you are planning to remodel your home, contact Assurance Builders for your FREE quote today!