Return on Investment: Choosing Home Improvements That Boost Property Value

Return on Investment: Choosing Home Improvements That Boost Property Value

Choosing home improvements with a high return on investment is important because not all home improvements are created equal. ROIs on home improvements can range from negative (decreasing your home value) to 100% or more.

While your home is more than a dollar sign, it’s also one of the largest investments of your lifetime. Knowing how renovations can affect its value and what it does to your pocketbook is important.

Here’s what you should know before choosing your home improvements.

Factors to Consider Before Making Home Improvements

The ROI is the largest concern when deciding if home improvements are worth it. Just because you want an improvement doesn’t mean your potential buyers (even if years down the road) will agree.

Every year, Remodeling does a Cost vs. Value study to give homeowners an idea of which renovations make the most sense. The most recent release compared 23 home renovations, with the top four providing an ROI greater than 100%.

While ROI is obviously important, here are a few other factors to consider:

  • Location: Don’t make renovations that aren’t normal for the area. Again, just because you want something doesn’t mean the market supports the changes. You may walk away with a much lower ROI than anticipated or even a loss, depending on the type and depth of the renovations.
  • Expect the unexpected: Things that you didn’t expect will happen, and that can knock your remodeling budget way off course. Ensure you have a cushion; if not, wait until you are prepared for anything.
  • Cost of materials and labor: Immediately following the pandemic, the cost of materials and labor skyrocketed and remained that way for years. While prices have since decreased, checking the average price of materials and labor before planning a renovation is important to ensure your timing is right.
  • Purpose and emotion: You must also consider the purpose of the renovation and the emotion involved. If the renovation is something that will enhance your home’s purpose or make it easier on you (such as accessibility changes), then ROI may not matter.

Top Home Renovations

Without further ado, let’s get into the top home improvements with the highest ROI.

Finish the Basement

There are mixed feelings on whether a basement conversion is worth it. When done in the right area, it could provide a solid ROI. According to Angi, there’s an average 70% ROI on basement conversions.

Again, consider your audience and whether this is normal for the area. Don’t expect too much ROI if you are the only house within a few mile radius with a finished basement. However, if it’s normal for the area, you may see a considerable return.

When you convert the basement from a place to store things to a place to live or entertain, it can add value because you add more square footage of living space.

Add a Home Office

A home office might not be on your radar for home improvements with a high ROI, but it can be a great addition in some markets. If a lot of people in the area work from home, they will value a home office over many other renovations.

Of course, adding a home office could be quite expensive, depending on the home’s layout. Some common ideas are to convert a walk-in closet, build an addition, or remodel the basement to include a home office.

Renovate your Kitchen

Kitchens are the heart of the home, and when you keep the renovations minor, they can have an ROI of 85% or higher. Common minor kitchen upgrades include:

  • Refacing or replacing cabinet fronts
  • Replacing drawer and cabinet hardware
  • Replacing appliances with energy-efficient appliances
  • Installing higher-grade countertops or floors
  • Painting

Sometimes, it’s the simple upgrade that has the highest ROI.

Renovate Your Bathroom

Like kitchens, the bathrooms are an important part of the home, and any renovations should be minor to keep your ROI high.

Common bathroom renovations include:

  • Replacing fixtures like faucets, toilets, and tubs
  • Updating lighting
  • Installing a new tub surround
  • Upgrading countertops and vanities
  • Replacing the flooring

Most homeowners see an average ROI of 66% or higher on minor bathroom renovations.

Add Energy Efficient Features

Any energy-efficient changes you can make may increase your home’s value. You can keep it simple and install things like smart thermostats, security cameras, and video doorbells, or you can go more extravagant by installing energy-efficient washers, dryers, dishwashers, and refrigerators.

If it’s in your budget, you can also consider energy-efficient doors and windows, as you lose the most energy in your home without using energy-efficient windows and doors.

Replace your Garage or Front Door

Believe it or not, garage door replacement nets a 102% ROI. This could be due to the curb appeal it offers your home, but it is also one of the most used features on a home, so a quality garage door is important.

Front doors also add to a home’s curb appeal and often have a 100%+ ROI. When replacing the garage or entry door, be sure it matches the home’s style and décor to ensure it increases curb appeal.

Upgrade or Replace your Siding

Depending on the type, siding replacement can have an 88% – 95% ROI. Old siding can greatly decrease a property’s value and curb appeal while protecting your home. The roof and siding are the most important factors in a home’s protection from the elements, and old siding can be prone to mold if not properly cleaned and fixed.

How to Determine if a Home Improvement Makes Sense

With the wide range of ROIs, it can be challenging to determine which home improvements make sense. Of course, not every home improvement will provide an ROI, but if it’s something you want for your home, you should consider it.

Other than what you want, though, here are some factors to consider whether a home improvement is worth it:

  • When are you selling? Consider your plans for the home when deciding if a home improvement is worth it. If you’re thinking of doing something to the house that doesn’t make the top list of home improvement ROIs but will sell in the next year or two, skip the renovations. However, if you’re renovating a home you plan to live in for many years, the high cost may be worth it.
  • Do you have a personal reason? Some renovations are essential, such as taking in an aging parent or disabled family member. Making your house accessible is crucial in properly caring for your loved one, and the ROI won’t matter in this situation.
  • Did you just move in? If you just bought your home, give yourself about a year to get acclimated to it. Even if there’s a crucial feature missing or you settled and didn’t get everything you wanted, make sure that’s still the case in a year and then consider the renovations.

Can you do Renovations with no ROI?

There is no rule stating you can’t do a home improvement if you don’t receive an ROI. The key is to weigh the pros and cons and ensure you’ll get everything possible out of the renovation.

Like we said above, if you’re moving soon, don’t do any renovations that don’t have at least an 80% or higher ROI. You won’t be there long enough to enjoy the renovation and won’t see enough of a return on your investment.

Of course, all renovation decisions are your personal choice. But if you want to keep your investment in your house positive, consider the returns you’ll get.

Can Home Improvements Decrease Your Home Value?

It’s true that some home improvements can LOWER your home’s value. Typically, this occurs on renovations that are due to your personal tastes or needs. For example, adding a recording studio to your home is personal to what you need. It greatly limits the potential pool of buyers who would find the same interest in it and could decrease your home’s value overall.

The same is true of super expensive renovations or additions. For example, you may want that state-of-the-art kitchen appliance that cost $10,000, but you may not see a dime of that on return because it’s not normal for the area and actually decreases your home’s value.

Final Thoughts

You can obviously do what you want with your home, within reason and by following the local ordinances, but focusing on the financial return is crucial. Your home is likely the largest investment you will make in your lifetime, so be sure any decisions you make for it have a positive financial impact.

While garage door replacements, new entry doors, and new siding aren’t exciting, they provide the greatest ROI and the highest chance of increasing your home’s value. Mix in some renovations that you want to suit your personal taste, and you have the perfect combination that promises a solid ROI.