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:
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!
When you decide it's time to sell, it can become a mad rush to get your home out into the market. But you should catch your breath first.
Here are six things to check off before you list your property:
Before you consider selling, research the market, focusing on properties in your area. Is it a good time to sell? Where do you intend to move next? What's your budget, including moving? You don't need all the answers, but you should develop a clear set of goals and have a realistic view of your finances before you invest time and money into preparing for sale.
If your property needs major repairs, ensure these are taken care of before you look to tempt prospective buyers. Make sure your home can pass inspections with flying colours. Don't neglect smaller items, like replacing fixtures, patching holes, locks on windows, or leaky taps. It's the details that often make or break a home.
If you've been putting off that big clean-up, now's the time. You'll need a thorough, head-to-toe scrub to get an accurate assessment of what your property is worth and have the best chance of enticing a buyer. Wash, buff, wax, freshen up with paint, and remove unsightly wear and tear. Remember the importance of curb appeal. Spruce up the garden for optimal first impressions.
Arguably the most important step before selling your property is being able to bid it farewell and no longer see it as a home. Focus on your future rather than the past, and make peace with your property as a product to be marketed and sold. How will you channel your insights into a targeted campaign for a new owner?
A great agent makes all the difference to your listing, and ultimately, your sale. Ask around and find a reputable agent you're comfortable with, who understands the market nuances of your area. Flattery is lovely, but you want an agent who's committed to frank, realistic dialogue about the market and your needs.
Presentation, presentation, presentation! Get rid of clutter and overly personal items so buyers can picture themselves in your property. Invite as much light as possible, and remove unpleasant smells (like traces of pets). Get a second opinion to make sure you haven't missed anything. Your agent and a professional home stager can offer an objective review before your home hits the limelight.
One of the hardest parts about interior decorating and design is figuring out your own style and tastes. To further complicate things, our styles and taste are constantly evolving. Some people like everything, which can make it difficult to narrow down your ideas into a single concept. Others are extremely picky and have trouble finding anything that matches their personality. Bottom line — if you struggle to define your own tastes, picking furniture, room colors, and decor can be quite the challenge.
Luckily, our real estate agents are here to help. We've seen thousands of homes and designs, so we know the importance of individual style. We compiled a list of the top 6 ways to define your own interior style and preferences:
Selling Secret #10: Pricing it right
Find out what your home is worth, then shave 15 to 20 percent off the price. You'll be stampeded by buyers with multiple bids — even in the worst markets — and they'll bid up the price over what it's worth. It takes real courage and most sellers just don't want to risk it, but it's the single best strategy to sell a home in today's market.
Selling Secret #9: Half-empty closets
Storage is something every buyer is looking for and can never have enough of. Take half the stuff out of your closets then neatly organize what's left in there. Buyers will snoop, so be sure to keep all your closets and cabinets clean and tidy.
Selling Secret #8: Light it up
Maximize the light in your home. After location, good light is the one thing that every buyer cites that they want in a home. Takedown the drapes, clean the windows, change the lampshades, increase the wattage of your light bulbs and cut the bushes outside to let in sunshine. Do what you have to do to make your house bright and cheery – it will make it more sellable.
Selling Secret #7: Play the agent field
A secret sale killer is hiring the wrong broker. Make sure you have a broker who is totally informed. They must constantly monitor the multiple listing service (MLS), know what properties are going on the market, and know the comps in your neighborhood. Find a broker who embraces technology – a tech-savvy one that has many tools to get your house sold.
Selling Secret #6: Conceal the critters
You might think a cuddly dog would warm the hearts of potential buyers, but you'd be wrong. Not everybody is a dog- or a cat-lover. Buyers don't want to walk into your home and see a bowl full of dog food, smell the kitty litter box or have tufts of pet hair stuck to their clothes. It will give buyers the impression that your house is not clean. If you're planning an open house, send the critters to a pet hotel for the day.
Selling Secret #5: Don't over-upgrade
Quick fixes before selling always pay off. Mammoth makeovers, not so much. You probably won't get your money back if you do a huge improvement project before you put your house on the market. Instead, do updates that will pay off and get you top dollar. Get a new fresh coat of paint on the walls. Clean the curtains or go buy some inexpensive new ones. Replace door handles, cabinet hardware, make sure closet doors are on track, fix leaky faucets, and clean the grout.
Selling Secret #4: Take the home out of your house
One of the most important things to do when selling your house is to de-personalize it. The more personal stuff in your house, the less potential buyers can imagine themselves living there. Get rid of a third of your stuff – put it in storage. This includes family photos, memorabilia collections, and personal keepsakes. Consider hiring a home stager to maximize the full potential of your home. Staging simply means arranging your furniture to best showcase the floor plan and maximize the use of space.
You're not actually selling your house, you're selling your kitchen – that's how important it is. The benefits of remodeling your kitchen are endless, and the best part of it is that you'll probably get 85% of your money back. It may be a few thousand dollars to replace countertops where a buyer may knock $10,000 off the asking price if your kitchen looks dated. The fastest, most inexpensive kitchen updates include painting and new cabinet hardware. Use a neutral-color paint so you can present buyers with a blank canvas where they can start envisioning their own style. If you have a little money to spend, buy one fancy stainless steel appliance. Why one? Because when people see one high-end appliance they think all the rest are expensive too and it updates the kitchen.
Moving into a new home is an exciting time. It's also a time to reorganize and set your home up how you want it. Check out these amazing do it yourself storage ideas to create more space and keep things organized.