The ROI from a home renovation, depends on several factors:
However, most home improvements will not give you a 100% return on investment. While HGTV shows like Fix it or Flip it can make it seem like renovations are a great way to make money, that's not the reality for the majority of home remodeling.
The rule of thumb that we share with homeowners is that you can expect a 70% ROI, on average, with home renovation projects.
If you're looking for a way to invest your money and turn good profit, any financial expert worth their salt will not advise renovating as the way to do it. There are many other routes to invest your money, like putting money into the S&P 500, for example, that will give you a better return than a home renovation.
The reason why ROI is such a big factor in home renovations is that remodeling is the only method of investing where you get two means of value: you can get the ROI, and the greatly improved quality of life with a new space in your home.
For example, when you purchase a car and get repairs, you're spending money on a depreciating asset. You're putting money into your car and you won't get back a single dollar.
When you purchase and renovate a home, you're putting work into an appreciating asset - and chances are some of that money will stay with you! But there are still better ways to invest if that's your number one priority.
So while ROI is exciting and important, it should not be the end-all-be-all of your project.
With that said, there are some insights we can provide based on experience in the renovation world, as well as remodeling research.
'Type of project' is one of the biggest factors in determining your renovation's ROI. While obviously the other factors like timing, market and location will make a difference too, there are some common projects that generally provide a better ROI than others.
In general, projects that add functional space and square footage add the most value.
But let's break that down even further:
As the two most utilized spaces in a home, investing in these rooms makes sense for both ROI and quality of life.
In some of the hottest housing markets, that means a return of 100% or more of the renovation costs.
These spaces are functional, filled with appliances and a necessary piece of every home - which means that they're useful for any future buyer, no matter what.
However, this high ROI does not ring true if you're completing a renovation that is purely aesthetic, using luxury materials and finishes, or creating a kitchen that's far outside the norms for your neighborhood.
If you stick to a moderate kitchen or bathroom renovation, and your home actually needs an update, you can get a great ROI.
High-income buyers value a finished basement, according to a study by NAHB.
On average, finishing this space will provide 70% ROI, meaning you can increase your property value by $700 for every $1,000 you spend.
With some drywall, flooring, and paint, this space offers more heated square footage, which can bump a home into a different price bracket.
Adding functional space to your home is always a surefire way to get a good ROI when you're doing renovations, and more homeowners in high-income areas expect basements to be functional, livable areas.
In addition to enhancing the beauty of your property, certain upgrades also help improve your home's efficiency and security.
Overall, projects that involve exterior improvements - from new windows, roofing, and siding to painting and landscape maintenance - can result in 80% ROI (see the table below).
One reason for this is that "curb appeal" is the first thing home buyers notice when they see a property - even if they don't go inside.
So, a general rule of thumb for top ROI projects: adding more functionality and square footage will add value.
Generally, any home improvements that are purely aesthetic and outside of the norm for your neighborhood will give you a worse than average ROI.
Luxury entertainment upgrades probably won't give you a great ROI because they're not necessary for all future homebuyers, and they're also heavily based on personal preference.
What do we mean by this?
The only exception is if you live in an extremely high-income area. Then it's possible that some of these spaces will be expected or common for homes and the ROI won't be as low.
However, if you live in a low-income or medium-income area, these spaces will provide little to no ROI, because future home buyers will not be willing to pay for them.
A general rule of thumb for bottom ROI projects: purely aesthetic or entertainment-based upgrades with no extra square footage will not add value.
For example, if you're redoing your kitchen and picking out luxury materials, finishes and appliances - there's a good chance that the person purchasing your home in the future may not like these choices more than their more moderately-priced equivalents.
Another factor that impacts ROI with renovations is timing. Depending on the month or year, certain renovations can provide more value than others.
For example, after the pandemic, more homeowners value functional outdoor spaces - like backyards, porches, decks and patios - because of the safety and distance they offer when people are sick.
According to Remodeling Magazine, this is the average ROI for these 22 common renovation projects in 2021:
|Project||Job Cost||Resale Value||Cost Recouped|
|Garage Door Replacement||$3,907||$3,663||93.8%|
|Manufactured Stone Veneer||$10,386||$9,571||92.1%|
|Minor Kitchen Remodel | Midrange||$26,214||$18,927||72.2%|
|Siding Replacement | Fiber-Cement||$19,626||$13,618||69.4%|
|Window Replacement | Vinyl||$19,385||$13,297||68.6%|
|Siding Replacement | Vinyl||$16,576||$11,315||68.3%|
|Window Replacement | Wood||$23,219||$15,644||67.4%|
|Deck Addition | Wood||$16,766||$11,038||65.8%|
|Entry Door Replacement | Steel||$2,082||$1,353||65.0%|
|Deck Addition | Composite||$22,426||$14,169||63.2%|
|Grand Entrance | Fiberglass||$10,044||$6,116||60.9%|
|Roofing Replacement | Asphalt Shingles||$28,256||$17,147||60.7%|
|Bath Remodel | Midrange||$24,424||$14,671||60.1%|
|Bath Remodel | Universal Design||$38,813||$22,475||57.9%|
|Major Kitchen Remodel | Midrange||$75,571||$43,364||57.4%|
|Roofing Replacement | Metal||$46,031||$25,816||56.1%|
|Bath Remodel | Upscale||$75,692||$41,473||54.8%|
|Master Suite Addition | Midrange||$156,741||$85,672||54.7%|
|Major Kitchen Remodel | Upscale||$149,079||$80,284||53.9%|
|Bathroom Addition | Midrange||$56,946||$30,237||53.1%|
|Bathroom Addition | Upscale||$103,613||$54,701||52.8%|
|Master Suite Addition | Upscale||$320,976||$152,996||47.7%|
As you can see, outdoor improvements that are part of curb appeal make the list, as well as kitchen and bath remodels. But upscale remodels in general provide a worse return on value.
There is no tried-and-true mathematical formula for calculating the ROI for home improvements. And the only official way to calculate home value is an appraisal, which is a process where a real estate appraiser determines the fair market value of a home.
This is usually only done when you're buying and selling a home, so it might be tough to correlate the calculated value with a renovation project to see how home improvements may have impacted the value.
However, there is a unique type of appraisal called an "as-completed appraisal" where an appraiser will look at your renovation plans and your current home value and determine how much value they will add upon completion.
As-completed appraisals cost money, and are normally only completed if part of the process for applying for a "renovation loan," where the borrowing power is based on the equity of the home "as-completed."
For this unique type of appraisal, an inspector will look at sales comparisons in your neighborhood, as well as your current home's specs and your renovation plans.
But this process is an art not a science, and two different appraisers could come to different conclusions on the same house.
One benefit of financing a renovation with a renovation loan, which relies on this type of appraisal, is that you can be sure exactly how much value you're getting from a renovation.
In other cases where you're not getting an "as-completed appraisal" - all you can do is guess - or use our 70% rule of thumb to determine your project's ROI.
One important thing to note is short-term value vs. long-term value when thinking about ROI.
Projects that are adding functional space and square footage - like additions, finishing the basement, or making moderate upgrades to appliances - are value-adds that will stand the test of time, because they do not rely on design trends.
These types of projects add "long-term value." For example, if you're adding a bed and a bath to your home (and this addition won't take it outside of the norm for the neighborhood), this renovation will be useful to homeowners now and in 50 years.
But other renovations, like new kitchens, will add "short-term value," because in 20 years any aesthetic improvements made could be out of style.
For example, giving your kitchen a farmhouse, all-white style renovation could greatly boost your home's value in a hot market within the next 5-10 years.
But if you're not planning on selling for another 20 years - this design style could be seen as a negative, and out of date, by homebuyers. Thus - the value of this upgrade only holds up for so long. Think about your mom's pink bathroom from the 80s. At one point it was the peak of style. Now, you'd struggle to sell that without re-doing it.
This is why we don't recommend making ROI your biggest motivator when it comes to kitchen and bathroom renovations - because your style preferences might not be "in" in thirty years.
You should make your quality of life your top motivator for your remodel, so you can make choices based on your family's needs when it comes to renovation style.
Just because an open floor plan might not be the hottest new layout, that doesn't mean it won't be awesome now for you and your family.
Any financial advisor will tell you that there are a lot of smarter and easier places to invest your money and get a better return. But renovating your home is a really unique investment because it kills two birds with one stone: it improves your quality of life, and it adds value at the same time.
Your home is an appreciating asset - and therefore it makes sense to put money into it over time to keep it in good condition, especially toward safety hazards, or broken/non-functioning parts.
But - renovation, solely as a means to add value, does not make sense and isn't necessary unless you're fixing and flipping.
If you're considering renovation outside of adding value though, when you factor in 70-90 cents on the dollar in ROI AND a major improvement in quality of life? It's genius.
Here are some questions to ask yourself as you're considering a renovation:
While a nice, clean carpet is often a key component of a comfortable living space, it doesn't take long for it to get nasty. Carpet is a harbor for germs, dust, debris, dirt, and so regular cleaning is important for keeping your family healthy and your home's interior looking good.
A good carpet cleaning routine involves more than just regular vacuuming; however, the process doesn't have to be difficult. Establishing a regular cleaning cadence is key. Our real estate agents pulled together this quick guide to carpet cleaning options so you can help preserve the floors and air quality in your home:
A clean carpet can make a huge difference when it comes to the comfort and air quality of your home. Regular cleanings can also extend the life of your carpet by several years. Contact us today for more home improvement tips.
Did you know hard water can negatively impact your home over time? While it's safe to drink, hard water can lead to many interior problems, which is why our real estate agents recommend addressing it as soon as possible. Hard water is common across much of the US, especially in the Midwest. As a result, it's an issue most homeowners have to contend with. Below, we'll tell you all about hard water and share some simple solutions for treating it in your home
What Is Hard Water?
While most water contains minerals, hard water contains high levels of calcium and magnesium. Water accumulates high levels of these two minerals when it streams through deposits of limestone or chalk. It's usually easy to tell if you have hard water as it often leaves a chalky film on your dishes, or it can even have a strong taste or odor. However, there are also inexpensive hard water test kits available that can tell you for sure.
How Can Hard Water Affect Your Home?
The effects of hard water range from short-term mild inconveniences to significant long-term damage. In any case, it's a good idea to address the issue right away. Here are some examples of the effects hard water can have in your home:
How Do I Treat Hard Water?
The easiest and most common way to treat hard water is with a water softener or filtration system. Some of these systems use negatively charged magnetic beads to collect calcium and magnesium particles while simultaneously allowing water to flow through. Other systems filter out calcium and magnesium from your water while pumping in sodium ions. The later types come with a separate salt tank, and the salt needs refilling periodically; however, the good news is water softener salt is usually inexpensive.
Once the process is complete, the water then flows out of the filtration system and into your home's plumbing. Water softeners range in price, but purchase and installation are usually around $1,500 on average. However, many of these gorgeous Holland homes for sale are already equipped with a water softener.
Eliminating hard water from your house can help you avoid unwanted water stains, unhealthy skin, and plumbing and appliance issues. It's definitely worth the investment. For more home maintenance tips, contact us today.
Your house isn't just a place to live, it's also a major investment and vehicle for accumulating wealth. While homes generally appreciate over time if you keep them in good shape, there are also things you can do to help generate an extra return when it comes time to sell. At the end of the day, investing in a more livable home is the best way to boost your sale price.
Here are some top recommendations from our real estate agents to maximize your home value:
When thinking of what repairs and upgrades can drive value, put yourself in the shoes of a buyer. Try to imagine what would make your home more comfortable, liveable, and convenient. Contact us today for more home improvement tips.
2022 is finally here and many of us are thinking about what home renovations we'll be making this year. Home improvements make for great New Year resolutions because they not only provide a sense of personal achievement but also benefit you financially in the long run.
The tricky part about planning home improvements is it's often difficult to know where to start. If you're looking for some ideas to start your year off right, here are some recommendations from our real estate agents:
Contact us today for more home improvement recommendations!