June 7, 2023

Home Improvements as Investments: Which have the Greatest Returns?

By Brianne Lindstrom

Your home appreciates over time so it’s in your best interest to spend money on maintaining or improving its condition, especially when it comes to safety and functionality.  You will want to think about value from a longer-term and shorter-term perspective.  Investing in projects that improve the quality of your experience add long-term value.  The greatest returns come from projects that add square footage or more living space.  Buying luxury upgrades and aesthetic improvements won’t give you a great ROI because they aren’t always necessary, and design trends fade over time.

No matter what type of project you decide on, it’s safe to assume that it will not provide 100% ROI.  However, you can expect an average return of 70%, with consideration of the type of project, current market, location of your home, and timing.

Essential Rooms

The kitchen and bathroom are the two most utilized spaces in a home.  Renovating either one of these rooms to optimize functionality not only benefits you and future owners or tenants, but it will also provide a great ROI.  Depending on the market, that could mean recouping 90% or more of your investment.

Finishing the basement for additional living space is another option. It can be a significant undertaking, but with careful planning and execution, it can be a rewarding endeavor, particularly for growing families or families that have multiple generations living together. When converting underutilized and unfinished space into a functional living area, you can expect a potential return of 70% on your investment.

Curb Appeal

A positive first impression can go a long way, especially if you’re considering selling your home. Exterior improvements often involve repairing or replacing elements that are prone to wear and tear, including siding, roofing, or gutters. Addressing these maintenance issues proactively can prevent further damage and costly repairs later. Additionally, It’s easier to justify a high listing price with a fresh coat of paint, updated siding, or a new roof because it makes your property more appealing. Fencing or new windows also improves your home’s efficiency and security.  On average exterior improvement result in a return of 70% - 80%.

Things to Consider

As I mentioned before, it’s important to think about your location and surroundings.  If you live in a high-income neighborhood, it is possible that you would benefit from investing in luxury or highly specialized improvements, like a home theater or pool.  If you live in a low to medium income neighborhood, you can expect these investments will give you a lower return because future buyers can’t afford to pay for them.

Timing is another factor to consider.  Outdoor spaces like porches, decks, or patios can add more value as the warmer months approach.  Who doesn’t love enjoying the great outdoors from the comfort of their own home?

It’s worth noting that the specific improvements and their potential return on investment can vary based on several factors.  If you want to make informed decisions about any home improvements project, it is in you best interest to consult with local real estate professionals or contractors who have experience in your market and can provide insights tailored to your specific situation.

This blog post was summarized from the article published by Renofi: Which home renovations have the best ROI (return on investment)?