Your home is a huge financial investment. Any money you put towards your home should not only increase your enjoyment of it but also add value so you can reap the benefits when you sell.
Whether you’re planning on selling in the next few months or maybe even a few years down the road, remodeling with the return on investment (ROI) in mind is a smart and strategic move.
What is Return on Investment (ROI)?
Return on investment is a performance measure used to evaluate the efficiency or profitability of an investment. Essentially it is the value of the return you receive on your investment compared to its initial cost. This measurement can help homeowners understand the value of a house and how improvements will impact that value.
True Return on Investment for Homeowners
As previously stated, your home is most likely among your largest assets. To calculate the ROI on your home, consider beginning with a more conservative approach.
- Add up your acquisition costs (down payment, attorney fees, closing costs, etc.)
- Add up your total costs of ownership. Calculate the total payments made to principal and interest, taxes, insurance, repairs and maintenance, plus other expenses such as HOA fees.
- Add up your selling costs. From the real estate agents (typically acquiring about 5% of the overall sale price) to the closing costs and even state and local tax amounts, the selling costs could be quite significant.
- Find your loan payoff amount. You should already know what this is if you’ve sold your home. However, if you are just thinking about selling your home, you can use an online amortization schedule or call your bank.
- It’s time to calculate:
Sale Price – Buying, Owning, Selling Costs – Loan Payoff Amount = Total Profit/ Loss
Factors that May Impact Your Return
Some homeowners have the benefit of being able to choose when to sell. Unfortunately, a lot of homeowners do not have such flexibility. The market conditions tend to be one of the biggest drivers of your ROI, but it’s also something that can’t be controlled. Different kinds of home improvements have higher or lower ROIs, depending on the housing market trends or the house’s overall longevity.
It’s important to note that a positive ROI can be left to interpretation. If your home’s ROI is not truly positive, that doesn’t mean it wasn’t a good investment. Factors such as the property’s neighborhood, the value of homes in your immediate neighborhood, how soon you sell after making improvements, the quality of your renovation projects, condition, appreciation, and the amount of time you owned the home, all play key roles in determining the ultimate ROI.
Home Renovation Projects to Consider:
Up to 25%-30% of residential heating and cooling use is due to heat gain and loss through windows. Other than keeping your home more comfortable and energy-efficient– new windows could bring a ton of functionality and aesthetic value to your home like noise reduction, improved safety, and UV protection.
As new windows are a long-term investment, it’s important to think not about how quickly your money will be recovered, but how long it is before they need to be repaired or replaced again.
A new window replacement project adds around 70%-80% of its total cost to the home value, not to mention the curb appeal new windows create for your home.
Investing in a high-quality roof could provide a plethora of long-term benefits by increasing the roof’s lifespan and reducing the cost of maintenance. With high-quality roofing materials that are built to last and can withstand the elements, you could save money on repairs and replacements for years to come. Roofs are also a major component of your home’s appearance and could drastically improve overall curb appeal while adding significant value to your home.
Bathroom renovations can be a great investment for your home. The master bathroom is how you begin and end every day. Updating the fixtures and decor can breathe new life into your existing bathroom and add more functionality to your bath space. Additionally, the investment you put into your renovation could also increase your home’s value. A mid-range couldl provide a return on investment of 70 percent, and an upscale remodel could provide an ROI of 56 percent. However, if your home only has one bathroom, your money may be better spent adding a second bathroom.
Solar panels are a popular investment for homes that receive ample sun exposure throughout the year. The benefits extend beyond resale value, including lower electricity bills and carbon footprints and potentially higher home values.
However, there are a few things you should consider before you jump in and start the installation process– like, whether your roof is in need of repair, the shape of your roof, and the payback period for your upfront investment.
Kitchen remodels are known to be definite investments. Kitchens have become the heart of entertainment in the home. Bathrooms and Kitchens play such a key role in the home that real estate agents sometimes name them as the “go-to” rooms during home showings. New faucets, drawer knobs, and pulls in a matching style give a modern and cohesive look while being relatively inexpensive. Not only will you enjoy the upgraded look, but it could also make your property look even more attractive to prospective buyers.
The Home Office
In recent years, the number of people who work from home has risen exponentially. In a Fall 2021 survey by HomeLight, 60% of top real estate agents cited a home office as a top priority for buyers in their market.
Creating a space or dedicating a current room to a home office will likely pay off in the long run, especially if you’re in a market with a decent amount of people who work from home.
While the dedicated workspace is still important to homebuyers, there is also a high demand for open spaces for family time and entertainment.
By this logic, knocking down a segregating wall can create a spacious layout on many homebuyer wishlists. Commonly, an open space between the kitchen and dining room, or even the kitchen and family room are popular. Consult with a contractor before swinging the hedgehammer to ensure a structurally supported space.
Average Returns on Investment on:
|Return on Investment
Solar Panel Average Returns on Investment:
The average solar panel ROI depends on various factors, and so does your payback period. The system size and the typical electricity bill varies for each household, leading to varying prices even across the same city.
Solar Panel Return on Investment by State 4:
Smart Low-Cost Home Improvements
You don’t have to expand your budget to make your home more appealing to buyers. These lower-cost projects still add aesthetic value to your home.
- New Interior Paint
As a general rule, it is best to stick to neutrals- gray or beige walls with a clean, white trim perform well. (Search for painters near you)
- Curb Appeal
Painting your front door can have a big impact. Consider going for charcoal, smoky-black, or even jet-black doors.
- Smart Home Technology
According to the Zillow Group Report 2020, 41% of Generation Z buyers and 47% of millennials rate smart home technology as highly important in their home search. (Home Improvement-Home-Security)
Deep clean carpets, buff out or refinish hardwoods to minimize the appearance of scratches and stains.
- New Lighting
This inexpensive, yet effective upgrade can highlight your home’s features and make small rooms appear even larger. (Search For New Light Fixtures)
- Update Your Mailbox and House Numbers
A beautiful home with a dented, old mailbox or peeling house numbers makes all the other improvements look pointless. A small investment to paint your mailbox in a durable finish or even hang aluminum numbers on your house could be worth it.
As you look around your home and consider opportunities for renovation, think about if the project will help the potential buyer view your property as a potential home. Are there rooms that need a little more TLC? Have you noticed dated features and amenities? If so,, some renovation plans may be mutually beneficial for you and your wallet.