One of the great things about owning a home is that you can truly make it yours. Don’t like the carpet? Rip it out. Hate the tan walls? Paint them any color. Don’t like the wall between the living room and the kitchen? Tear it down (as long as it’s not a load-bearing wall)!
More homeowners are choosing to renovate their current space rather than buy a new home. Whether you’re updating out of necessity, personal taste, or a desire to build equity, it pays to research which home renovations deliver the best return on investment before you pick up that sledgehammer.
Questions to Ask Yourself
It’s great to tailor your space with home renovations, but keep in mind that these “improvements” can affect your home’s value. This impact can be positive or negative.
Not everyone wants, say, a sunroom at the sacrifice of their backyard space. Or a bathroom where there’s no separation between the toilet and shower (yes, we’ve seen it!).
There are, of course, tons of home renovations that can produce higher returns on investment (ROIs) for the money spent. That’s where you want to focus your time and attention.
Before you get that sledgehammer out, think about how long you plan to keep your home. If the answer is one to three years, you have these questions to answer before you start any home renovations.
- Will these home improvements be attractive to prospective buyers?
- Will these updates increase the equity I have in my home?
- What will my return on investment (ROI) be?
If you plan to stay in your home for a longer period, the questions are a little bit different:
- What do I wish my home had?
- What do I value the most in my home?
- What makes me feel relaxed in my home?
- Would these home renovations meet my personal needs?
The ROI Calculation
While home renovations can be a good investment, you can’t calculate their exact return on investment—aka ROI net—until you actually sell your house. It’s one of the limitations of ROI. At that time, the value of the project will help determine the home’s resale price and your net profit.
To calculate return on investment, take the resale value of the home renovation and divide it by the total project cost, including labor, materials, and any other associated expenses. That number is expressed as a percentage.
An ROI above 100% means you recouped more than you spent. For example, a garage door replacement that costs $4,672 and adds $12,507 in resale value yields an ROI of 267.7%. An ROI between 0% and 100% means you recovered a portion of your investment but not the full amount. Either way, this formula tells you how much of your initial investment you can expect to get back when you sell.
Remodeling Projects with Good ROIs
The Journal of Light Construction puts together a fantastic cost vs. value report that provides a breakdown of the home improvement projects yielding the highest return on investment. What follows are some national statistics on home renovations that could add the most value to your home.
Garage door replacement
Installing a new garage door can enhance your home’s curb appeal, improve your home’s safety, and increase its energy efficiency. The number of garage door designs and materials is nearly endless!
When you pick out a new door, consider how much insulation you want, whether you want windows or hardware, and what style and materials you prefer. A garage door should match the home’s architectural style, in addition to the windows, doors, and other exterior details of the home.
- Project cost: $4,672
- Resale value: $12,507
- ROI calculation: 267.7%
Manufactured stone veneer
Manufactured stone veneer has an outstanding rate of return. Manufactured stone veneer emulates natural stone, but it’s easier and more cost-effective to install.
For this project, you’ll remove the bottom third of your siding and add manufactured stone veneer around the perimeter of your home (and the archway above your door if you have one).
This really upgrades the entire look of your home. Even better, stone veneer is hardy and virtually maintenance-free.
- Project cost: $12,150
- Resale value: $18,460
- ROI calculation: 151.9%
Minor kitchen remodel
If you have to decide between a kitchen and bathroom remodel, you may want to go the kitchen route. You might be surprised to learn that a minor kitchen remodel has a better ROI net than a major kitchen remodel, where you can recoup more than you spend. Small changes can make a huge difference in how your kitchen looks.
For this project, you’ll replace the cabinet and drawer fronts and hardware but keep the cabinet boxes. You’ll replace appliances with energy-efficient models.
You’ll also install laminate countertops, a mid-priced sink and faucet, and new resilient flooring. This can include vinyl tile and planks, cork, rubber, or polymer floors. Finish your kitchen by painting the walls, ceiling, and trim.
- Project cost: $28,458
- Resale value: $32,141
- ROI calculation: 112.9%
Deck addition
Everyone uses their outdoor living space a little differently, so keep this in mind when you’re looking at getting a good ROI. Something like a wood deck adds diversity, giving you many more options in your backyard!
Consider adding a built-in bench, a planter, and stairs (made out of the same planking as the deck), as well as a complete railing system to make your deck as versatile as possible.
- Project cost: $18,263
- Resale value: $17,323
- ROI calculation: 94.9%
Siding replacement
Want to upgrade your curb appeal? Think about replacing your exterior siding with either fiber-cement or vinyl siding. New siding can completely change the look of your home’s exterior.
You’ll also benefit from better insulation. Modern siding materials have insulation in their design, helping your home retain heat in the winter and reflect heat in the summer, which will save money. Siding also helps to protect your home from the elements and pests. Here’s how the two most popular options compare:
Fiber-cement:
- Project cost: $21,850
- Resale value: $19,228
- ROI calculation: 88.0%
Vinyl siding:
- Project cost: $18,280
- Resale value: $14,624
- ROI calculation: 80.0%
Bathroom remodel
A new vanity and sink, complete with fixtures you love, can change the look of the room.
If you have a standard builder-grade mirror, swap it out for a framed mirror and add updated lighting on either side. If you’re in the market for a bigger upgrade, consider surrounding the shower with tile, or even installing a freestanding soaking tub if space and money allow. Floors are also a great upgrade—and there are tons of options available!
- Project cost: $26,138
- Resale value: $20,915
- ROI calculation: 80.0%
Other High-Impact, Low-Cost Improvements
Paint
Paint is so simple, yet it makes the biggest impact on your home’s interior and exterior. Plus, it’s one of the least expensive changes you can make! Many people opt for neutral colors to give their home a timeless look or to have the freedom of switching up the décor. Neutral colors are also highly recommended if you’ll be selling your home soon.
Flooring
It can be hard to feel comfortable in your home if you don’t love your flooring. Hardwood floors always look fantastic and are great for resale. Maple, oak, and hickory are durable choices, as are bamboo, cork, and other eco-friendly options.
Luxury vinyl tile and wood-look tile are also durable, especially if you have pets or a swimming pool. They’re waterproof and nearly indestructible.
If you have small children, you may want to consider upgrading the carpet instead (with a cushy pad underneath), to keep little crawlers and walkers safer. But if you can, keep carpeting to bedrooms only.
Entry door replacement
Did you know that a new front door could return a great ROI? First impressions are everything, and so is curb appeal. When you’re considering low-cost home improvements to increase your home’s price, this is one you don’t want to ignore.
Making Your Home Stand Out
Of course, there are many other home renovations that can spruce up your home and act as an investment gain when the time comes to sell. Just consider the costs of investing versus the potential rate of return.
In a changing market, a home chock-full of upgrades can really stand out. Plus, you can use the equity in your home to finance or partly finance these home renovations. APM is happy to help. Reach out to us today to learn how you can put your hard-earned equity to work for you.
This blog has been updated from its original posting date of May 31, 2020.