Running the renovation numbers
Renovating your home is a great strategy for homeowners for two reasons. The first, and perhaps the most obvious, is that you are able to remodel your home to exactly the way you want it, giving your living space a new life with all the modern amenities and conveniences at your fingertips. The second reason, however, is resell value.
It's not always easy to know how much a renovation is worth to your bottom line, though. Simply tacking on the cost of renovations to your sale price won't cut it most of the time, so we put together this handy list of how much ROI (return on investment) you can expect from the various different types of renovations.
One note before we dive in: All of the figures we present here are meant as national averages. Of course, your specific neighborhood and housing market may vary dramatically, but this should give you at least a baseline estimate to consider.
Also, in both new home construction and home renovations, the increased costs of building due to higher material prices, labor shortages and inflation during the height of the pandemic are still very much felt today. Bear all that in mind as we move forward.
Two questions to ask yourself
Remodeling your home is no easy feat. In addition to the monetary costs involved, the renovations can be potentially disruptive in the short term. Just imagine redoing your flooring, where all your furniture and most of your belongings have to be moved around, potentially several times before it all settles down. On the extreme end of the spectrum, you and your family may need to temporarily relocate away from the home while all the repairs and updates take place.
With that in mind, it's important to ask yourself two questions when you decide to move forward with a renovation. Both of them correspond to the main two reasons for renovation that we listed above:
- Is the total cost worth what it would add to my quality of life?
- Is it worth it in terms of the value it would add to my home?
Calculating the value
The first question is one of personal taste. Since that is a qualitative measurement instead of a quantitative one, the cost of what it will add to your standard of living is ultimately up to you. Don't be afraid to ask your friends and family who have made similar upgrades or renovations. Opinions that you can trust may be the deciding factor on whether the cost is worth it.
As for the second question, we can help answer that one for you now. Each year, Remodeling magazine releases their Cost vs. Value report.1 It's a great reference resource as you get started. Based off of that report, here are the renovation projects with the most robust ROI rates:
Garage Door Replacement:
- Cost: $4,041
- Value added: $3,769
- ROI: 93.3%
Coming in at the top of the list, simply replacing your garage door, including all of its mechanical workings, is the highest return on the list. At 93.3%, on average, you are getting the most back for your money. Plus, as home renovations go, it's a (relatively) inexpensive update for your home that delivers on your investment when the time comes.
Manufactured Stone Veneer:
- Cost: $11,066
- Value added: $10,109
- ROI: 91.4%
Just under garage doors, a faux stone exterior has the next highest ROI of any of the renovations on this list. Even with materials shortages all throughout the housing industry, this kind of upgrade can give your home a classic, tasteful look while also netting you more than 90% of the costs in resell value, on average.
Minor Kitchen Remodel - Midrange:
- Cost: $28,279
- Value added: $20,125
- ROI: 71.2%
Major Kitchen Remodel - Midrange:
- Cost: $80,809
- Value added: $45,370
- ROI: 56.1%
Major Kitchen Remodel - Upscale:
- Cost: $158,015
- Value added: $83,025
- ROI: 52.5%
A refreshed or renovated kitchen is one of the first things that potential buyers will zero in on while they are home hunting. Part of it is that, unless you are still living in the house at the time of the showing, the kitchen will be one of the only "finished spaces" in the house. Certainly, it's one of the few places that buyers can envision themselves living in without much in the way of furniture or furnishings.
All that is to say that upgraded or smart appliances, new countertops and updated cabinets are a great investment when you're renovating. Even a midrange remodel has a significantly higher return rate than either the major midrange or upscale projects.
Siding Replacement
Fiber cement:
- Cost: $22,093
- Value added: $15,090
- ROI: 68.3%
Vinyl:
- Cost: $18,662
- Value added: $12,541
- ROI: 67.2%
Replacing your home's siding can land you some serious returns, and it's easy to see why. New siding, especially of the vinyl or fiber cement (also called "hardie board" in places) variety, can make your home look like new. In addition, new siding materials can deter unwanted pests from moving in and causing damage to your home. Bottom line, siding is a renovation that beautifies even as it protects.
Window Replacement
Vinyl:
- Cost: $20,482
- Value added: $13,822
- ROI: 67.5%
Wood:
- Cost: $24,388
- Value added: $16,160
- ROI: 66.3%
New windows can add a fresh new look to your home. With the addition of solar screens, new weatherproofing techniques and weather insulation, or "storm" windows, you can also improve the overall heating and cooling efficiency of your home while simultaneously giving the home instant curbside appeal.
Deck Addition
Wood:
- Cost: $19,248
- Value added: $12,464
- ROI: 64.8%
Composite:
- Cost: $24,677
- Value added: $15,315
- ROI: 62.1%
Outdoor living spaces became a major selling point during the pandemic as homeowners wanted more room to relax and unwind at home. Now that the country has opened up again, outdoor features have continued to be popular as owners wish to entertain friends and family during the warmer months. In short, a deck and renovated outdoor spaces tend to be a good investment.
Bath Remodel
Midrange:
- Cost: $27,164
- Value added: $15,990
- ROI: 58.9%
Universal Design:
- Cost: $42,105
- Value added: $23,869
- ROI: 56.7%
Upscale:
- Cost: $82,882
- Value added: $44,363
- ROI: 53.5%
Bathrooms are another place that potential buyers can imagine themselves living in. An inviting tub, a great shower, even a really great sink and toiletry setup can be just the thing to put your home over the top in the buyer's mind. That's why bathrooms historically have a good ROI.
The universal design bathroom renovation listed above is in some ways similar to the 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. It's also quite a bit more affordable overall, as the averages for the two clearly demonstrate.
Master Suite Addition
Midrange:
- Cost: $175,473
- Value added: $93,762
- ROI: 53.4%
Upscale:
- Cost: $356,945
- Value added: $165,359
- ROI: 46.3%
It's safe to say that the increased costs of building materials are one of the reasons that new home construction and home renovations are more expensive these days. While labor shortages due to the pandemic and other materials play a part in this increased pricing, lumber shortages are one of the most obvious indicators we can point to that has had an impact on the bottom line here. Case in point: master suite additions.
In 2021, a midrange addition averaged $156,741, and an upscale addition was $320,976. This year, it is 11.9% higher for the former and 11.2% higher for the latter. Those percentages may not seem like much at a glance, but when you consider the high costs involved for either renovation, even a small percentage can really add up. So, the ROI of a new master suite renovation continues its downward trend, from 54.7% down to 53.4% for a midrange project and 47.7% down to 46.3% for an upscale one.
So, that's a look at what you can expect your return on investment to look like on your home renovations, on average. Our goal, as always, is to help you make a more informed decision that fits your unique needs and circumstances. We want to see you living in the best version of your home, so if you are contemplating a renovation in the foreseeable future, we recommend that you talk to one of our expert loan officers to find the options and type of renovation loan that will work best for you.
1 © 2022 Hanley Wood Media Inc. Complete data from the Remodeling 2022 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.