When you remodel a home, you can reasonably expect to increase the value of your property.
But by how much? What’s the return-on-investment, or “ROI” on a remodeling project? Will you get all your money back? Will you make a profit? Will you loose half of your investment?
It’s one of the simplest questions in real estate with one of the most complicated, confusing, and highly-debated answers in the industry. The ROI for remodeling depends on many factors, not least of which is the type of project. But it also depends on the buyer, on the range (midrange vs upscale, for example), and the current housing market.
It’s complex, but if you look at the right sources, you can get a general idea of how much you’ll spend and how much you’ll get back from your remodeling efforts. Whether you want to customize your home or sell quickly, this information will help you make the right choices…
What’s the ROI for a Remodel?
There are two high-quality sources that provide trusted information on remodeling costs vs. the return in home value. Remodeling Magazine provides annual reports on the average costs of 21 different projects, dividing the information by regional markets. The National Association of the Remodeling Industry (NARI), in a combined effort with the National Association of Realtors, also provides a Remodeling Impact Report. With these two sources as your guides, we can get a strong picture of the ROI for a remodeling project.
Exterior Upgrades Appear to Bring the Best ROI
If your goal is to find remodeling projects that bring the best ROI, you should look towards the exterior. Enhancing the “curb appeal” of your property not only makes your home more attractive to buyers, it also can increase the value of your home.
Information from Remodeling Magazine says that a garage-door replacement, with a cost of $3,470 and a return of $3,411, has the highest ROI at 98%. Not far behind is manufactured stone veneer (97%), steel entry door replacement (91%), and a wood deck addition (83%).
This theme of exterior remodeling continues in the NARI report. Their research found that a garage door replacement will recover 87% of the cost, fiber-cement siding will recover 83%, and a new roof will bring 109% of the costs, making it one of the few projects that could actually return more than you spend.
Important, Non-Cosmetic Changes are Also Beneficial
If the house doesn’t need exterior upgrades, but you’re still looking for a safe place to spend your remodeling dollars, it appears the next best thing could be necessary repairs and replacements. We already discussed roof replacement (109% according to NARI), but new vinyl windows bring a 79% return and also help the efficiency of the home.
If you look at Remodeling Magazine’s numbers, you see similar trends. Siding replacement brings a 77% return and vinyl window replacement brings 74% according to their research. It appears that the important things for a quality of the home, and not necessarily the luxury or convenience, are better for bringing value.
Less Cost, Better ROI
Another trend you’ll notice is that, in general, lower-cost projects are better for bringing a return on your investment. Of the top five projects for ROI according to Remodeling Magazine, four are less than $11,000. The three lowest-cost projects have an ROI over 90%, and of the five lowest-cost projects, only one is below 80%. On the other hand, the top seven most-expensive projects all have ROIs below 60%.
The lesson? In general, if you can find low-cost projects, you will likely have a better return from your remodeling investments.
Looking Beyond the Numbers: What Make Homeowners Happiest?
We’ve talked a lot about prices, ROI, and home values, but there comes a time when you have to admit that it’s not always about the money. In many cases, you should remodel your home because it will make you happy.
According to Remodeling Magazine, a midrange major kitchen remodel only recoups about 59%, while NARI says a complete kitchen renovation recoups an average of 62%. But this project, according to NARI, has a “Joy Score” of 10. That’s right, NARI doesn’t just factor the costs and ROI, but to better reflect the motivations for remodeling, they also provide information on how happy these projects generally make homeowners.
The lesson here is that you can’t alway make decisions for remodeling based solely on numbers. Your primary residence isn’t a stock portfolio or even an investment property; it’s your home! If a remodeled kitchen will make you happy, then by all means you should consider the project. If a bathroom renovation (50% ROI, 10 Joy Score) will help you finally have the bathroom you’ve always wanted, then maybe you should look beyond ROI.
Helping Finance Your Home Remodel
If you have a home that needs remodeling, the total can certainly become expensive. The costs can build up as the scale and scope of the projects increase, but even the smallest, simplest projects can be difficult for some families.
Fortunately, there are a few options for financing that help you pay for the remodeling without requiring a significant upfront investment. For example, a HELOC can help fund your renovations by issuing a loan against your home. This is a common way for homeowners to get remodeling funds without the higher interest rates that often come with personal credit and other forms of lending.
A 203(k) loan from the FHA can actually help you purchase a home and pay for remodeling in one loan. This loan program can be especially useful for people who want to move into a “fixer-upper” but may not have the upfront cash to pay for remodeling.
If you have any questions about remodeling loans, let us help. We’ll make sure you have the right information to make a fully-informed decision so you can get the best possible terms, and the best ROI, on your remodeling project!
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“Hey Chad, Just wanted to send a quick note to Thank You for all your work and effort to get this escrow closed. It was a pleasure to work with someone as professional as yourself. If I have a client that ever needs a lender you will definitely be someone that I would recommend.”