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November
4

Which home renovations have the best ROI (return on investment)?

No matter what the motivation for your home renovation may be, you'll want to know that your money is well spent. These are the home improvements that provide the best return on investment (ROI) to increase your home's value.

Summary

  • On average, home renovations provide a 70% ROI.
  • Home renovations are one of the only investments that can improve the quality of life in your living space and increase the value of your home for the future.
  • The home improvements with the best ROI are projects that add functional space and square footage. Common examples are finishing basements, addition projects that add bedrooms/bathrooms, and new kitchens.
  • Home improvements that don't add value are: luxury upgrades, aesthetic-only improvements, or out-of-the-norm projects for your homes in your neighborhood.
What is the ROI of a Home Renovation?#

The ROI from a home renovation, depends on several factors:

  • Real estate market
  • Location
  • Project type
  • Timing

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.

What Home Improvements Give the Best Return?#

'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:

1. Remodeling Kitchen & Bathrooms#

As the two most utilized spaces in a home, investing in these rooms makes sense for both ROI and quality of life. 

While renovating your kitchen or bathroom can be the most expensive in terms of construction, you'll get as much out of it as you put in. 

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.

2. Finishing the Basement#

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.

3. Upgrading the Curb Appeal#

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.

What Home Improvements Give the Worst Return?#

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, and aesthetic upgrades#

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?

  • Pools/hot tubs
  • Renovations with unusually expensive materials
  • Luxury or upscale kitchen/bathroom designs
  • In-home theatres
  • Backyard sports courts
  • Other highly specialized spaces, like wine cellars or home movie theatres

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. 

Renovation Return on Investment Chart 2021#

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.

How Do You Calculate the ROI on Home Renovations?#

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.

As-Completed Appraisals#

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.

Short term value vs. long-term value#

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.

Is Renovating a Good Investment?#

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:

  • Is my renovation plan really "trendy"?
  • Will these upgrades stay within the bounds of what is "normal" in my neighborhood?
  • Is my renovation adding square footage?
  • Is my renovation making my house more functional?
  • Am I choosing materials, appliances and finishes that are well-priced?
  • Is the main motivator behind this renovation my own quality of life?
  • How long do I plan to stay in this house before moving?
November
2

Cleaning your carpets may seem like a hassle, but it's a necessary task. This guide will make the process easier.

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:

Click Here to Read More...

July
18

It's not always easy to inspect your plumbing. Here's how you can ensure hard water won't ruin your pipes and appliances.

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

Click Here to Read More...

March
21

Your home is usually your largest investment. Here's how you can make sure it holds its value.

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:

  • Focus On Curb Appeal
    The view of your home from the street is so important when it comes to selling because it's usually front and center in your listing photo. Good curb appeal is critical for garnering online attention, but it's also the first thing buyers see when they pull up to the home. Simple things like painting the front door, installing a new mailbox, and keeping up with lawn care are all great ways to keep your curb appeal top-notch. Some of our favorite Grand Haven homes for sale have stunning curb appeal!

  • Focus On Energy Efficiency
    Green living is an important characteristic for buyers today, so energy-efficient features are a must. You don't have to install solar panels to make your home energy efficient — there are many simple things you can do, including:
    • Install a smart thermostat to optimize heating and cooling costs.
    • Reapply caulking around your windows.
    • Replace incandescent bulbs.
    • Invest in double-pane windows for extra insulation
    • Install ceiling fans in bedrooms and living rooms to minimize cooling costs.

  • Fix-up Your Kitchen and Bathrooms
    If you're planning a remodel or a major renovation, prioritize the kitchen and bathroom over other areas of the house. These are often the two most important rooms when it comes to attracting buyers. Installing new flooring, lighting, sinks, or counters in the kitchen and bathroom are often considered to be some of the best ways to improve home value. Need some inspiration? Check out some of the beautiful kitchens in these Hudsonville homes for sale.

  • Finish The Basement
    An unfinished basement presents an excellent opportunity to unlock additional value in your property. Buyers seek finished basements to serve as game rooms, dens, extra living rooms, or even home offices. Make upgrading unfinished basement space a top priority.

  • Upgrade The Major Appliances
    Buyers don't want to worry about making major replacements or upgrades shortly after moving in. Furnaces and hot water heaters typically last 10 to 15 years, so if yours is reaching the end of its lifespan, it might be worth upgrading prior to listing your home. Convincing buyers they won't need to worry about major fixes for years to come can really help increase the home's appeal.

  • Take Care Of The Roof
    An aging roof comes with an expensive price tag, and this could quickly turn off buyers. You may want to consider a roof replacement prior to listing your home. However, depending on the cost — it can be difficult to recover your entire investment. At a minimum, make sure to take care of any cracked, missing, or warped shingles that may be leading to leaks in the attic.

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.

January
17

If you're looking for ways to upgrade your home in the new year, add these resolutions to your list.

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:

  • Declutter One Room A Month
    Decluttering can have a positive impact on mental health; however, it can also be a massive undertaking. For many people,  the job can seem too large to handle. This often leads people to lose motivation partway through. Instead of tackling the project all at once, make it an effort to declutter one room each month. This will help you break things down into more attainable goals.

  • Focus On Curb Appeal
    Curb appeal is a term that describes how your home appears from the street. Enhancing curb appeal is especially important if you want to make your property stand out among these Holland homes for sale. It can also drastically increase your home value.

    To improve curb appeal, consider painting your front door, cleaning your siding, improving your landscaping, or even purchasing a new mailbox. By taking these simple steps, your home will stand out in no time.

  • Increase Energy Efficiency
    Making your home more green not only benefits the planet but also can decrease utility bills. Going green doesn't necessarily mean investing in solar panels — there are so many simple ways to improve your home's energy efficiency. Install ceiling fans, invest in double-pane windows, and reapply caulking and sealant. You can also evaluate your insulation and make sure to tackle any overdue roof repairs, which may be allowing warm or cool air to escape. A programmable thermostat is also a great way to improve energy efficiency.

  • Create Your Home Office
    Many of us have been working from home since the beginning of the COVID-19 pandemic; however, if you're still setting up your laptop at your dining room table, it's time to start thinking about your home office.

    Even if you don't have an extra bedroom, there are many places you can build a home office. If you have unused space under the stairs, in the corner of the basement, or in the upstairs hallway, these could all be suitable options. Just invest in a desk that fits and matches the space, a comfortable chair, and some basic office decor. Remember, home offices are critical selling points these days.

  • Enhance Your Outdoor Space
    Make 2022 the year you create your outdoor paradise. Enhance your porch or patio with new furniture, rugs, and mood lighting. Perhaps invest in a new grill or outdoor table, so you can be prepared to entertain company when warm weather arrives.

  • Update Your Kitchen
    The kitchen is often considered the most important room of the house when it comes to home value. If your kitchen is long overdue for an upgrade, 2022 is the year to get it done. Invest in new matching appliances, apply a new coat of paint, update your lighting fixtures, and perhaps invest in a new kitchen table. If you're thinking about adding a new color scheme, check out the Behr or Benjamin Moore  2022 Colors of The Year

Contact us today for more home improvement recommendations!

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