Not all home renovation projects are created equal. If you are choosing between several home renovation projects, the tie breaking factor could be which renovation project returns the most over the holding horizon you plan to keep the home.
Most projects do not add more value than their cost, but there are definitely some projects that are better than others. Over time, kitchen and bathroom renovations tend to outperform projects like decks and home theaters, but the rankings can change depending on the region you live in. Keep these ideas in mind when you decide what your next project will be.
Best value-added home renovation projects
From a return perspective, doing a minor bathroom remodel can be one of the best home renovation projects. On average, a simple bathroom renovation that costs $10,500 returns about $10,700 at resale based on average US data. This equates to a 102% return, placing it at the top of the expected value for home projects.
For homeowners who want to strike an equal balance between consumption and investment return, landscaping projects can provide a 100% return on investment if done properly. Many realtors advocate for projects that boost the curb appeal of a home.
Replanting around entry ways and driveways for an uncluttered and welcoming look can make your home far more appealing for resale. If you are considering a landscaping project, two basics to bear in mind are to stick with one color and to vary the height of plants to create a cohesive yet striking design.
Smaller projects can return lots of value
From both a practical and financial standpoint, replacing your front door can transform the entrance of your home for a relatively small investment. It can become the focal point of your home’s exterior. Even giving the door a fresh coat of paint can make it look brand new.
Some smaller projects that walk the line between renovation and home maintenance are compelling because they increase the comfort of your home while providing very high ROIs. One example of this is attic insulation, which has been shown to return approximately 100% on its initial investment.
Distinguish between adding value and consumption
One of the benefits of spending money on home renovations is that you can derive utility from projects like kitchen upgrades. Since kitchens are the functional heart of a home, the benefits from upgrades like new appliances and countertops have to be factored in to the decision to renovate. If a homeowner analyzed the simple return on investment from a kitchen project, it would not make obvious sense.
Kitchen upgrades are frequently touted as one of the best home advancements for value retention, but the financial return can vary depending on the number of luxury and discretionary upgrades for project elements like appliances, tile, cabinets and countertops.
Once the renovation is complete with the benefits of storage, easier meal preparation and new appliances, the true return from a functional-oriented perspective is much greater than the simple financial return.
Keep an eye on where you invest in your home
Ultimately, homeowners must strike a balance between investing in projects that create personal satisfaction and those that generate the best returns. Creating a matrix that can assess which projects have the best balance can help prioritize projects.
Certain upgrades like back-up generators and back yard patios can provide a lot of utility to a homeowner, but they generally do not provide a lot of return at resale. This doesn’t mean that these upgrades aren’t worth it, but they should not be done with the expectation for recouping a large majority of their initial cost.
At First Centennial Mortgage, our expert team can advise you in regards to many types of home loans, including loans that can provide for renovation funds. We invite your inquiries and look forward to working with you for all your home financing needs. Contact us today to get your project started.