The smartest home upgrades blend personal comfort with a boost in property value.
Thinking about remodeling your home? A spa-like bathroom, an outdoor deck, or a luxury kitchen with updated cabinets and top-of-the-line appliances might sound appealing. However, before you call the contractor, consider which upgrades will build the most equity if you decide to sell or refinance. In this article, we'll explore the best renovations for adding value to your home and maximizing your return on investment, helping you confidently plan your next project.
What Is Return on Investment?
Simply put, return on investment (ROI) measures how profitable an investment is. The best home improvement projects come close to returning 100% of your original investment. So, which renovations offer significant returns? Updating old features, increasing square footage, and improving functionality can boost your home’s appraised value. However, most home improvements won’t yield a full 100% ROI. Unlike what house flippers on TV suggest, making money with home renovations is more complex in reality.
Several factors affect the financial return on your home renovation investment, including:
Location: Your expected ROI can vary based on your region, local real estate market, and even your neighborhood. Consider neighboring houses and their features. Do your planned improvements fit with the neighborhood?
Timing: When you plan to sell can impact your ROI. Is it a buyer’s or seller’s market? In a buyer's market, you might not recoup your investment. In a seller’s market, with buyers competing for homes, you might meet or exceed a 100% return on your investment.
Type of Project: Not all remodeling projects add value to a house. Before starting a major remodel, consult a local real estate agent if you’re planning to sell to ensure you get the most return on your investment.
A high ROI for home improvement projects means recouping a significant amount of renovation costs through selling the house, increasing its equity, or through savings (like reduced energy costs). Calculating ROI can be tricky due to various factors. A home appraisal is the only way to determine the fair market value of your home and how renovations might improve it. Fortunately, experts have identified the best and worst home renovations for ROI. We’ll discuss those after examining short-term and long-term value.
Short-Term vs. Long-Term Value
Adding functional space and square footage (e.g., new room additions or finishing a basement) or installing an extra bathroom are examples of improvements that tend to stand the test of time. They consistently appeal to potential buyers and add substantial value to your home for years to come.
Conversely, while trendy kitchen makeovers can give your home an immediate wow factor, their appeal may fade as trends evolve. Remember the ubiquitous granite countertops? Today's hot trend could be tomorrow's dated look.
Short-Term Value Boosters
Planning to sell or refinance soon? Let's explore some smart projects that can add immediate value to your home:
- Deck, Patio, or Porch Addition
Create an inviting outdoor space that captures buyers' hearts and boosts your home's perceived value.
- Average ROI: Expect a solid 65% to 90% return on your investment
- Average ROI: Expect a solid 65% to 90% return on your investment
- Bathroom Refresh
As real estate pros often say, "Kitchens and bathrooms sell homes." Consider updating showers, tubs, toilets, and vanities for a fresh look. For a more significant impact, renovate the entire space, especially the master bath.
- Average ROI: An impressive 90% to 100% - almost dollar-for-dollar return!
- Average ROI: An impressive 90% to 100% - almost dollar-for-dollar return!
- Kitchen Makeover
Opinions vary on the best approach. Some experts suggest minor updates like new appliances, cabinet refacing, and new sinks and flooring, while others recommend major renovations that change the room’s size and layout, adding new cabinets and counter space. Minor renovations are mainly cosmetic and cost much less than major overhauls. Consider your options carefully before deciding.
- Average ROI: Expect 50% to 75%, depending on the scale of your project
Long-Term Value Builders
Let's explore some remodeling options that offer lasting benefits:
- Adding a Bedroom: Since appraisers consider square footage, adding a bedroom can significantly impact your home’s value more than converting an existing room. Increasing the square footage will boost your home’s value, though the extent depends on factors like whether you're in an urban or rural area, your neighborhood, and the current market.
- Average ROI: Expect around 50% return on your investment
- Average ROI: Expect around 50% return on your investment
- Adding a Bathroom: While this can be expensive, it’s worth researching how much value an extra bath and bedroom can add to your home. If most homes in your area are three-bedroom, two-bath houses, and yours has two bedrooms and one bath, an addition could significantly boost your home’s value. However, overbuilding for the neighborhood might not yield a high return.
- Average ROI: Approximately 55% return
- Average ROI: Approximately 55% return
- Finishing a Basement: A finished basement adds more livable space to your home and can be very attractive to buyers. With some drywall, flooring, and paint, you can turn your basement into a major selling point, enhancing your home’s value.
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- Average ROI: An impressive 70% return on average
Curb Appeal
When it comes to home value, first impressions count. Let's explore some budget-friendly exterior renovations that can significantly boost your home's curb appeal and market value:
- Refresh Your Home's Face
A fresh coat of paint can make your home more marketable and attractive to prospective buyers at a relatively low cost. Faded or weathered siding should be replaced. New vinyl siding is less expensive than manufactured stone veneer, but both will enhance your home’s appearance and value.
- Average ROI: Expect a solid 50% to 95% return on your investment
- Average ROI: Expect a solid 50% to 95% return on your investment
- Door Upgrades
An old or dull-looking garage door doesn’t help your home’s appeal. Upgrading to a high-end garage door can make your house look safer and more attractive, adding value. Similarly, a new front door can make your home more inviting at a modest cost.
- Average ROI: An impressive 90% to 95% return
- Average ROI: An impressive 90% to 95% return
- Landscape for Success
Landscaping offers a great return on investment and is a low-cost way to make a strong first impression on potential buyers. Experts recommend a simple and clean design for both the front and backyard that doesn’t look too labor-intensive to maintain.
- Average ROI: Potentially 100% - one of the best returns in home improvement
Funding Your Home Renovations
As a homeowner, you have several options for financing upgrades and renovations:
HELOC: A home equity line of credit is a revolving line of credit that lets you borrow against your home’s equity up to a certain limit. HELOCs usually have lower interest rates than unsecured loans.
Home Equity Loan: This installment loan comes with closing costs and provides you with funds in one lump sum. It’s a good choice if you know exactly how much you need to borrow.
Cash-Out Refinance: With a cash-out refinance, you get a new mortgage for more than what you owe on your home, and the extra amount goes to you in cash. If you can secure a low interest rate, this can be an excellent source of low-cost funds.
Renovating your home can enhance your quality of life and increase the value of one of your most significant assets. The best renovations for you will depend on your personal goals and current circumstances. If you have any questions or need help with financing, don't hesitate to contact us. We're here to help you get started on your renovation journey.
Breathe Easier Upgrading an inefficient or outdated HVAC system can enhance your quality of life, reduce energy costs, and boost your home’s value. |