Renovations with robust ROI.
Š Alexander Potapov, denphumi/stock.adobe.com; Photo illustration EncyclopÌdia Britannica, Inc.
Remodeling your home may get you more money when you sell it, although some projects offer a better return on investment (ROI) than others. Replacing the roof could add big bucks to your homeâs bottom line, whereas, depending on where you live, installing an in-ground swimming pool may send money down the drain.
Still, even remodeling projects that are proven to improve home value can become too costly if homeowners arenât careful. It pays to research your options before freshening up your pad.
Key Points
- Some home improvement projects, like adding insulation, arenât glamorous but may offer the biggest bang for your remodeling bucks.
- Kitchens and bathrooms are popular remodeling targets, although they typically improve livability more than provide increased returns.
- Systems replacements, such as upgrading a furnace, may become a bigger part of home remodeling as technology improves and homes age.
Plan your home remodeling project to save time and costs
The most cost-effective home improvement projects involve planning and research. Most homeowners undertake major remodeling projects because they expect to stay in their homes for several years, rather than to expedite a sale or attract a higher sales price.
Paying for it all
Dreaming of the changes youâd like to make to your home is the fun part of home improvement. Figuring out how to pay for it probably isnât. Many homeowners rely on a home equity line of credit to get the job done. Learn more about HELOCs.
The median amount spent for home renovations in 2022 was $22,000, according to a 2023 U.S. Houzz & Home study.
Projects that provided homeowners the greatest return on their investments were structurally significant and often costly, according to the National Association of Realtors, which conducts research to uncover which projects add the highest dollar value to the sale of a home. Many of these projects are expected to last for many years and retain their value over time.
Realtors found that these projectsâincluding both indoor and outdoor updatesâprovided the best returns on investment in 2022 and 2023:
- Refinishing hardwood floors, 147%
- Installing new wood flooring, 118%
- Upgrading household insulation, 100%
- Upgrading overall landscape, 100%
- Installing an outdoor kitchen, 100%
- Installing a new roof, 100%
- Replacing a garage door, 100%
- Putting in a new patio, 95%
- Installing a new wood deck, 89%
- Converting a basement into living space, 86%
Projects such as improving insulation provide increased resale value while saving consumers money in the long run. On average, homeowners can save up to 20% on heating and cooling costs or up to 10% on total energy costs by adding insulation to attics, floors, crawl spaces, and accessible basement rim joists, and by sealing air leaks throughout the home, according to the U.S. Department of Energyâs Guide to Insulation.
Spending money on improvements that stand the test of time factored into most homeownersâ decisions to embark on projects such as refinishing wood floors or putting on a new roof, where the use of durable materials helped to ensure the project lasts.
Popular upgrades such as kitchen and bathroom renovations donât provide as much bang for the buck, but they can still provide a significant return on investment, according to Realtors:
- Renovating a kitchen, 75%
- Renovating a bathroom, 71%
- Upgrading a kitchen, 67%
Realtors also found that some remodeling projects barely cover half the costs when it comes time to sell. Although the return on investment isnât as high as a new roof, these projects can improve functionality and livability:
- Adding a primary bedroom suite, 56%
- Installing landscape lighting, 59%
- Adding an outdoor fire feature, 56%
- Installing an in-ground pool, 56%
Zonda Media, a housing data firm, noted in its 2023 Cost vs. Value Report a few other home improvement projects that return nearly 100% or more of their costs when it comes time to sell:
Remodeling considerations
Kitchen and bath remodeling may be perennial favorites for homeowners, but updating primary systemsâsuch as electrical and heating/coolingâare becoming a focus for many homeowners.
Creating heat out of thin air
Improvements in heat pump technology are spurring HVAC system conversions. Heat pumps, which were once used mostly in regions where winters are mild, have improved markedly and can now be used in virtually any climate. Discover how a heat pump works.
From 1991 to 2021, homeowners spent more on replacing worn or outdated systems and equipment than any other type of remodeling, according to the Joint Center for Housing Studies of Harvard University. And as the nationâs housing stock ages, many more systems will likely need to be replaced.
In 2022, 29% of surveyed homeowners upgraded plumbing, with electrical (28%) and home automation (25%) updates close behind, the Houzz survey found. Improvements in heat pump technology, greater adoption of smart home automation, and government incentives (such as those in the Inflation Reduction Act of 2022), are expected to urge many homeowners to upgrade or replace heating and air conditioning systems.
With the median home remodeling project costing more than $20,000, it pays to plan carefully. Use these strategies to keep expenses down:
- Shop around. Get at least three bids from contractors who have done projects similar to yours, and ask for references.
- Comparison shop for fixtures, and consider purchasing goods such as kitchen appliances in bundles, which may provide a discount.
- Use stock sizes for doors and kitchen cabinets to avoid the expense of custom dimensions.
- Check to see if you can use recycled or salvaged materials, or homeowner-supplied materials. Some contractors wonât work with repurposed materials, so ask ahead.
- Investigate where you can donate or sell unused building supplies such as extra roofing tiles, cabinets that are in good condition, or other fixtures. You may make a few extra bucks or get a charitable deduction while keeping usable goods out of your local landfill.
- If youâre handy, put in some sweat equity by doing a portion of the project yourself, whether itâs demolition, or electrical or plumbing work. But be aware of local building codes and consult with your contractor or architect first.
- Avoid changing plans midstream. Thatâs a surefire way to add costs and time.
The bottom line
Remodeling your home can bring you a solid return on your investment and improve your homeâs livability. But no matter how carefully you plan, there still may be cost overruns. Problems hidden behind walls or unexpected increases in the cost of building supplies are common.
To stay on budget, allocate a percentage of the projectâs cost to cover overruns, such as 10% of the total. Keep all your receipts and documentation related to home improvements and remodeling projects in case there are any warranty issues.
Then, enjoy your new digs, knowing that youâve spent wisely on improving what may be the biggest investment in your lifetime.
This article was most recently revised and updated by Debbie CarlsonThis article was most recently revised and updated by David Schepp
