Home remodeling is a major industry, with residential construction spending accounting for two percent of the nation’s economy. For homeowners, the decision to invest in a renovation – no matter the price tag – is often one that requires some time and consideration.
But the reason that home improvement and remodeling is a $230 billion industry is that most homeowners find value in home improvement projects – and are comfortable putting a new bathroom (or paint job or roof) where their money is. Check out the graphic below which compares 14 of the most popular home remodeling projects and the typical return on investment.
Renovation Average Cost Resale Recovery :
Paint $700 - 200% plus
Add a Bathroom $10,000 - 96%
Kitchen Renovation (minor) $8,500 - 79%
Kitchen Renovation (major) $24,000 - 70%
Bathroom Renovation $7,500 - 69%
Add a Skylight $4,000 - 68%
New Siding $7,500 - 67%
Add Insulation $1,750 - 65%
Addition $35,000 - 62%
New Roof $4,600 - 61%
Deck $6,000 - 60%
Greenhouse Addition $17,000 - 56%
Replace Windows /Doors $12,000 - 55%
Add a Swimming Pool $24,000 - 39%
Source: National Association of the Remodeling Industry
Though you can expect a return on your investment, homeowners should be careful not expect to recover the full cost of the renovation immediately. Some things to consider when deciding whether an improvement project is a good investment are how it will impact the home’s appraisal value, how long you plan to be in the home after the renovation and the strength of the resale market in the area.
Home remodeling projects come in all shapes and sizes but typically fall into one of the following categories:
Maintenance & Repair: These types of projects must be done in order to preserve the integrity of the house and include jobs such as roofing, exterior painting, window upgrades and furnace upgrades amongst others. Home maintenance and repairs should be completed prior to other improvements or changes since buyers will look for a home with solid structure and systems before aesthetic improvements.
Curb Appeal: Curb appeal projects can take place in the interior as well as exterior of a home and can usually be done at a lower price, have an emotional appeal and generally have a higher ROI in addition to other benefits (most notably, being able to sell a house more quickly when the market is slow). When considering a curb appeal project, it is important to think about it the way a real estate investor would – focusing on visual improvements such as installing a lush lawn, doing landscaping, putting on a fresh coat of paint, de-cluttering the home, or installing cosmetic upgrades to key areas like the kitchen or bathroom, with new cabinet hardware, a new stove top range or lighting.
Neighborhood Norm: Projects like these are determined by the area or neighborhood that the home is located in. These include projects that a buyer might come to expect as a required feature for a home in that area to have, and without it, might reduce the value or extend time on the market. Some examples of neighborhood norm projects are adding another bedroom to a two-bedroom home if all other homes in the neighborhood have three bedrooms.
Appraisal Booster Projects: Banks and real estate brokers all engage appraisers to determine the market value of a home – and appraisers have certain key determinants that they are looking for. Some of these include the location of the house, livable square feet, number of bedrooms and bathrooms and material the home is constructed from.
When looking at an appraisal booster project you’ll want to consider increasing the livable area or other core appraisal metrics such as the number of bedrooms and bathrooms. As a caution, this does not mean to over-improve a house – for example, adding a fifth bathroom in a neighborhood of three-bedroom homes will not provide a significant return on investment.
Lifestyle Projects: Lifestyle projects conventionally do not have a high return on investment and occasionally, are even a liability to a prospective buyer. These include single purpose remodeling that is important to the builder, but not to the real estate market – for example installing fireplace in a typically warm area, likemost in Hawaii, or something like a skateboard ramp. When undertaking a project like this, understand that you will not be recouping much – if any – of your investment.
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