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Understanding the ROI on Home Renos

November 17, 2019

Whether moving into a new home or choosing to update an existing residence, home renovations are a big decision—and a big investment—that can often translate into remarkable returns. But, as even minor renos come with price tags, it’s important to think about what you might be getting back and what kind of value you’re adding to the resell value of your home. Some updates can deliver significant value when it’s time to sell, but not all home renovations are created equal or bring the return on investment (ROI) you think you might be due.

There are some basic guidelines to consider when weighing the pros and cons of need, utility, comfort, curb appeal and value.

What To Consider When Understanding The ROI On Your Home Reno

  1. Age of renovation vs. length of residency
    There’s nothing wrong with choosing to make updates that are going to make you happier in your home. But the longer you stay in your home and the older a renovation gets, make a big difference in the value of a renovation. Remodeling your outdated kitchen is going to make you happier and will look good to buyers next year, but in 10 years the value of isn’t going to hit home with potential buyers.

  2. Adding, improving or just replacing?
    A common hurdle for homeowners is understanding that replacing something that needs to be replaced doesn’t necessarily add to the value of your home. Of course, many replacement items do add value, especially big-ticket items like windows and shingles. These can be reassurances for buyers who don’t want to make a major investment and want to know that your property has been properly cared for. 

  3. Is the renovation useful? Or are you over-improving?
    Another common misstep for home renovators is making a renovation that is unnecessary, or flat-out useless and delivers little-to-no value for a purchaser. The backyard fountain might have always been your dream, but for a potential buyer there might be little value if they don’t appreciate it or won’t have a use for it. It’s also smart to keep in mind that spending big bucks might not deliver the value you expect. Adding a $100,000 kitchen to a $400,000 home is unlikely to raise the price in a buyer’s mind.

  4. Invisible work vs. curb appeal
    Homeowners are familiar with the amount of unseen work that goes into maintaining a home. Unless needed, renovations along these lines don’t always deliver expected value and more often than not buyers are swayed by aesthetic first impressions. However, some functional upgrades like additional insulation, updated wiring, may indeed pay back well and add comfort for a buyer.

Not All Renovations Are Valued Equal, But Which Ones?

Which home renovations deliver the most value? Or which ones might not be worth the investment? Not surprisingly, according to Remodeling magazine, the renovations that deliver the best ROI are aesthetic.

  1. Garage door - 97.5% ROI
    For a small investment, new garage doors are an effective facelift that quickly bumps curb appeal.

  2. Minor midrange kitchen renovations - 80.5% ROI
    Minor kitchen updates, such as new appliances, floors, countertops and refaced cabinets, add considerable value without having to rip out and start from scratch.

  3. Backyard wood deck addition - 75.6% ROI
    Decks are good investments that add value to your home but also gives you immediate enjoyment.

  4. Siding replacement - 75.6%
    Replacing dated siding boosts curb appeal and is a functional upgrade that buyers appreciate. 

  5. Front door replacement (steel) - 74.9%
    Like the garage and siding, a new front door is a quick boost to curb appeal and helps to reduce drafts and escaping heat. 

 Among the renovations that deliver the least ROI are additions, bathrooms and backyard patios. These don’t necessarily add to first impressions and can be exceptionally expensive. While meeting your immediate needs should be an important factor, when considering what renovation is going to drive long-term or resell value the focus needs to be on the prospective buyer. 

 If you have questions about the value of your home, or any aspect of real estate investing – talk to your mortgage broker. If you don’t have a mortgage broker, visit our find a mortgage broker tool.

 If you have an MCAP mortgage and are looking to use a portion of your home equity for your home renovations, contact us today!