Home Improvements That Give You the Highest Return on Investment (ROI)

Make Home Updates That Enhance Your Spaces and Your Home’s Resale Value

A spa-like bathroom? An outdoor deck? A luxury kitchen with updated cabinets and top-of-the-line appliances? If you’re a homeowner thinking of doing some remodeling, these may sound like appealing options. However, before you call the contractor, you’ll want to consider what upgrades make the most sense for building equity if you decide to sell or refinance. In this article, we’ll look at the best renovations for adding value to your home – and getting the most return on investment – so you can plan your next project with confidence.

What Is ROI, and Why Does It Matter When Planning Your Home Improvement Projects?

Return on investment (ROI) weighs cost and value to evaluate the profitability of an investment. The best home improvement projects are ones that recoup close to 100% of your renovation costs—either through resale, equity shifts or other savings, like utilities. Calculating ROI can be tricky, as there are a lot of variables to consider, but updating old features, increasing square footage and improving functionality can boost your home’s value significantly. That said, most home improvements won’t give you a 100% ROI.

The only way to determine the fair and full market value of your home—and how any home updates might improve it—is to get a home appraisal. These experts can crunch the numbers for you, which can help you determine the most valuable home improvements you can make for a return on investment.

How to Weigh the Short-Term and Long-Term Value of Home Improvements

Adding functional space and square footage—such as a bathroom, bedroom or finished basement—are home improvement projects that often add long-term value. On the other hand, giving your kitchen a trendy makeover may boost your home’s value for only a few years. Both short-term and long-term home improvement projects can add value, so it all comes down to picking the best one for your needs.

Home Updates With Short-Term Value

Short-term home updates often focus on aesthetics. If you’re planning to sell or refinance soon, go with home improvements like these that add short-term value:

• Adding a deck, patio or porch: An attractive exterior space for relaxing or entertaining adds to both the short- and long-term perceived value of your home. Average ROI: 65% to 90%
• Remodeling a bathroom: Updating showers, tubs, toilets and vanities can give your bathroom a fresh new look that buyers will appreciate. Redoing the whole room from floor to ceiling—especially if it’s the master bath—is even more enticing to buyers. Average ROI: 90% to 100%
• Remodeling a kitchen: Minor revisions like updating appliances, refacing cabinets and installing new sinks and flooring are a great place to start. Full-scale makeovers that change the size, layout and functionality are more of a long-term investment. Average ROI: 50% to 75%
• Painting: Painting is an easy way to boost your home’s short-term value and give a whole new feel to a room or the exterior of your home. Average ROI: 10% to 15%
• Adding new flooring: Replacing old and outdated flooring is a quick way to add short-term value to any space in your home. Average ROI: 15% to 25%

Home Updates With Long-Term Value

These home improvements can provide long-lasting value and cost significantly more due to their lasting benefits, but they don’t add equal ROI:

• Adding a bedroom: Because appraisers look at square footage, adding a bedroom will have more impact on your home’s value. Average ROI: 50%
• Adding a bathroom: Again, added square footage, especially when it comes to bathrooms, can boost your home’s value. Average ROI: 55%
• Finishing a basement: A finished basement adds more livable square footage to your home. With a little drywall, flooring and paint, you can turn the basement into a selling point and increase your home’s value. Average ROI: 70%

Don’t Forget the Curb Appeal

Making a few moderately priced home improvements could boost your home’s resale value:

• New siding: A fresh coat of paint or new vinyl siding can make your home more attractive at a relatively minor cost. Average ROI: 50% to 95%
• Update doors: Updating to a high-end garage door and front door makes your house safer. Additionally, a fresh coat of paint on your current doors can make your home look more inviting at a modest cost. Average ROI: 90% to 95%
• Fresh landscaping: Landscaping can give you the most bang for your remodeling buck. Average ROI: 100%

The Best Options for Funding Home Improvements

As a homeowner, you have a few options when it comes to funding your home updates:

• HELOC: A home equity line of credit is a revolving line of credit that lets you tap into your home’s equity to borrow money when you need it up to your limit. Compared with unsecured loans, HELOCs tend to have lower interest rates. A HELOC is a wise way to pay for your home improvements because you are making an investment in increasing the equity of your home.
• Home Renovation Loan: A home renovation loan helps you purchase or refinance your home and remodel it at the same time. If you are purchasing a home to remodel, this is the best loan for you.
• Cash-Out Refinance: With a cash-out refinance, your new mortgage becomes more than what you owe on your home. The extra amount goes to you in cash. If you can get a low interest rate, this can be a good way to finance home updates.

Choosing the Best Home Renovation Loan

Renovating your home can improve your quality of life and add value to one of your biggest assets, especially if you choose high-ROI home improvements. If you have questions about which home renovation loan option is right for you, we’re here to help.

 

Contact a Loan Officer

 

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