Running the renovation numbers
One thing that the pandemic has forced many of us to do over the last year and a half is to take a really close look at our homes. From working and learning at home to sharing a single space with multiple generations, some folks have found that their dream home can be a nightmare when forced to stay inside for many more hours of the day than usual.
This has led to two things: a surge in home sales, as homeowners decide they need something new in a new place, and a surge in home renovations. Many people are deciding that they love their neighborhood, love their location and mostly love their home—it just needs to be reimagined to work better for them, especially in these WFH times.
The reasons to renovate
There are many reasons to update and upgrade your home. Perhaps you need more space, or a different layout, or simply an upgrade in style. Perhaps you need to fix mistakes made by previous owners (I once saw a home where the only way to get to the second floor was through the first-floor bathroom). But no matter what your goal is, it’s important to consider the return on investment (ROI) of your renovation.
Undertaking any home construction project is a serious decision. You’re never certain that the changes you’re making are going to turn out exactly as you want them. There’s the ever-present concern that once you start opening up walls that you’ll find other issues that need repair. And you hope that all the updates you are adding will actually add value to your home.
During the pandemic, lumber and other essential construction supplies went through the roof as supply chains were disrupted. This increased the cost of renovations across the country, making it all the more important that you’re sure your renovations will add value.
It all boils down to the most important question you can ask yourself when planning a renovation: will this be worth the cost? And you can look at that in two ways:
- Is it worth it because it would add to our quality of life?
- Is it worth it in terms of the value it would add to our home?
Calculating the value
The answer to the first question is something every homeowner considering a renovation has to answer on his or her own. One way to get help with this is to ask friends and family who’ve gone through a renovation, also called a reno, if they think it’s worth it. And while you’re asking them, ask who their general contractor was and if they had a good experience with that person. That seems to be a determining factor in predicting whether it will be a positive or negative experience.
To answer the second question, we do have research that will help. Each year, Remodeling magazine releases their Cost vs. Value Report1 and it’s extremely helpful when making renovation plans. In their 2021 report, the projects that paid off the most, otherwise known as the ones with the highest ROI were:
Garage Door Replacement
- Cost: $3, 907
- Value added: $3,663
- Recoup: 93.8%
Depending on the layout of a home, the garage door can often be the first thing that someone sees. So upgrading a boring, old garage door is a quick way to revitalize your curb appeal. And this project not just about improving the look, but the mechanical parts, as well.
Manufactured Stone Veneer
- Cost: $10,386
- Value added: $9,571
- Recoup: 92.1%
Adding a faux stone exterior to your home has been a popular design trend over the last few years, and it’s a good investment as well. The national average cost for this project is $10,386 and the value added to your home is $9,571. It’s like a facelift for an old house, explaining why it is such a smart investment.
Minor Kitchen Remodel - Midrange
- Cost: $26,214
- Value added: $18,927
- Recoup: 72.2%
Major Kitchen Remodel - Midrange
- Cost: $75,571
- Value added: $43,364
- Recoup: 57.4%
Major Kitchen Remodel - Upscale
- Cost: $149,079
- Value added: $80,284
- Recoup: 53.9%
With restaurants slowing down or closing completely over the pandemic, we all have been cooking more and spending more time in the kitchen. How many people committed to making sourdough bread last year, only to be frustrated by too little counter space to perfect their stretch and folds?
That just goes to show how important our kitchens are, and why upgrading them remains such a great investment in terms of tacking on zeros to your home’s future sale price. The greatest ROI for this type of project is a minor kitchen remodel, which involves keeping the layout of the kitchen similar, but upgrading cabinet facing and countertops, and adding a new refrigerator and oven-range.
Spending more in your kitchen doesn’t exactly mean you’ll make more in a sale, as a major kitchen remodel and an even more upscale major remodel will allow you to recoup 57.4% and 53.9% of your investment in a sale, respectively. Not bad, but not as high as the minor remodel.
- Cost: $17,008
- Value added: $13,195
- Recoup: 77.6%
- Cost: $14,359
- Value added: $10,731
- Recoup: 74.7%
Siding replacement is a bit of a snoozer when it comes to renovation projects, but not when you run the numbers. Replacing siding, with either fiber cement or vinyl materials, is a project that has a high ROI. And think of it this way: New siding materials like fiber cement have high safety ratings, and when done well, can really upgrade the look of your home.
- Cost: $19,385
- Value added: $13,297
- Recoup: 68.6%
- Cost: $23,219
- Value added: $15,644
- Recoup: 67.4%
New windows can not only improve the look of your home, but also the energy efficiency. Not only that, think about what a potential homebuyer would think if he or she tested the windows at an open house and struggled to even open an old window.
- Cost: $16,766
- Value added: $11,038
- Recoup: 65.8%
- Cost: $22,426
- Value added: $14,169
- Recoup: 63.2%
One trend we saw during the pandemic was the importance of outdoor space, not just for kids playing and pandemic gardens, but also as a place to gather and connect in the relative safety of the fresh air. So it’s no surprise that adding a deck is a good investment in your home.
- Cost: $24,424
- Value added: $14,671
- Recoup: 60.1%
- Cost: $75,692
- Value added: $43,364
- Recoup: 57.4%
- Cost: $38,813
- Value added: $22,475
- Recoup: 57.9%
Much like the kitchen, a bathroom renovation has a long-held reputation for offering a good ROI. Also like the kitchen, the midrange upgrade is the project that will give you the most bang for your buck. Interestingly, the upscale renovation offered a higher ROI than the universal design last year, but now those two have switched positions with universal design more likely to be a better value.
A universal design bathroom renovation includes many of the same upgrades as an upscale renovation, but also includes many accessibility improvements that will make the bathroom more usable, and more valuable, to elderly people and those with disabilities. Perhaps that explains why the ROI on this type of upgrade is higher now, as more people may be choosing to stay at home and out of community living situations.
Master Suite Addition
- Cost: $156,741
- Value added: $85,672
- Recoup: 54.7%
- Cost: $320,976
- Value added: $152,996
- Recoup: 47.7%
We’ve covered before how materials costs, particularly lumber, are driving up the price of new home construction. That’s also true when it comes to renovation projects, and nowhere is that more obvious than a big-ticket item like a master suite addition.
Last year, a midrange addition averaged $136,739 and an upscale addition was $282,062—this year it is 14% higher for both. Unfortunately, the ROI of a new master has gone down, 58.5% to 54.7% for a midrange project and 51.6% to 47.7% for an upscale one.
Hopefully these numbers give you some necessary context when considering any upgrades to your home. Before you get started, find out more about the different renovation loan options that may be available to you, and learn about the steps you need to take to get a renovation loan. Finally, talk with a loan professional to set your budget and start getting a scope of what’s possible.
1 © 2021 Hanley Wood Media Inc. Complete data from the Remodeling
2021 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.