Why refurbishing your house provides a good ROI

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House Project Refurb ROI

There’s usually one question on everybody’s mind when planning to do a home renovation. This is usually “what are the chances I will get my money back when I sell the property?” There isn’t one answer that will fit all refurbishment projects and all circumstances. As will become clear below, it depends on various factors. These include the type of renovation to the neighborhood to the quality of the materials you use. Everything else remaining the same, however, certain home refurbishments consistently give better returns on investment (ROI) than others. Let’s take a closer look at how these factors play out when refurbishing your house.

The home improvements that normally give the highest ROI

According to a 2021 survey carried out by Remodeling magazine, these home improvements consistently give high returns on investment:

[1] Replacing your home’s old garage doors

The average cost we are looking at here is just below $4,000 and the ROI is an impressive 93.8%. This means that homeowners on average get nearly 94% of the cost of a new garage door back from the next owner.

The numbers here are based on replacing 16x7ft garage doors with four-section ones featuring galvanized, heavy-duty steel tracks and keeping the old motorized door opener.

[2] Adding (manufactured) stone veneer

Owners on average spent $10,386 on this job, of which they were able to recover 92.1% upon selling the house.

The average cost here refers to 40 linear feet of corners, 36 linear feet of sills, and an address block. Materials include corrosion-resistant lath and two barrier layers (water-resistant).

[3] A minor kitchen remodeling

With an average cost of $26,214 it doesn’t come dirt cheap, but homeowners were on average able to recoup 72.2% of this amount from future buyers.

The lesson here is that creating a kitchen that is both functional and modern can significantly increase the value of your home. The figures are based on a 200 square foot kitchen with 30 linear feet of cabinets and countertops where the owner replaced old appliances with new, more energy-efficient ones, installed a new sink or countertop, refaced cabinets, replaced hardware, repainted the walls, and added new flooring.

[4] Replacing old siding

Replacing old siding with new fiber-cement siding is another popular refurbishment project with a high ROI. The average cost here was $19,626 and the return on investment amounted to 69.4%.

Tired-looking old siding can give even the nicest house a worn-out appearance. For a typical family home, it will cost you around $19,500 to replace 1,250 square feet of old siding with brand new fiber-cement siding. The best part is that you should be able to get nearly 70% of that amount back when you sell the property.

[5] Replacing your home’s current windows with vinyl windows

This will on average cost around $19,385. You should eventually be able to recover 68.6% of that amount when you sell the property. These figures are based on installing 10 divided-light, low-emissivity, simulated vinyl windows.

Other popular renovation/remodeling projects that all boast a return on investment of more than 65% include adding a wood deck and remodeling your bathroom, basement bedroom, or attic bedroom.

The costs and percentages mentioned above are averages from across the United States. They might not necessarily apply in your part of the US. The ROI of any particular project depends on a variety of factors including your local market, the general state of the property market at that moment, the quality of the materials you use, and the quality of workmanship.

Preferences also change over time. Historically speaking, however, some types of projects have always provided a higher ROI than others. These include adding a wood deck, upgrading the bathroom and kitchen, and replacing old windows with new ones. All of these have generated remarkably high returns on investment irrespective of the state of the property market or the location of the property.

Things you should consider before starting to renovate your home

Bigger is not always better

Bigger upgrades do not necessarily deliver the highest returns on investment simply because they do not necessarily add significant value to the property in the eyes of prospective buyers.

Unless a refurbishment project aims to fix a design flaw or structural problem, based on historical data it is also very unlikely that you will recover more than the cost of the project when you sell the home.

If recovering your costs is more important to you than the enjoyment the refurbishment will bring to you and your family, you should start by researching the tastes of potential buyers in your part of the country. Never forget that, in order to recover most or part of the money you spend on refurbishing your house, there needs to be a buyer who is willing to pay for it.

Rental properties

These can of course deliver better returns on investment simply because the owner can increase the rent after an upgrade plus he or she can expect to get a better price for the property when they decide to sell it.

Location is important

Whatever type of project you are considering, it is important to make sure that the improvements you make will not make the property too expensive for the local property market or the specific kind of home. Homeowners often make the mistake of over-capitalizing their homes, making them too expensive compared to the rest of the properties in the neighborhood.

What attracts a buyer to a specific neighborhood often include the local services and the fact that homes in that part of the town or city are priced in his or her price range. A home with improvements that are not found in most other properties in the area will only sell if it’s priced reasonably close to the average price of other homes in the same area.

The state of the economy

During times of above-average economic growth and strong demand for residential properties, improvements have a better chance of significantly boosting a home’s value. During an economic downturn, however, it is more difficult to recover the cost of home improvements.

The effect of time

What also matters is how long after refurbishing your house you will decide to sell it. Certain types of improvements are able to withstand the test of time better than others. Making design or structural improvements such as adding an extra bedroom or a wooden deck will have a longer-lasting impact on a home’s value than, for example, updating the bathroom or kitchen, or installing high-tech improvements. The reason is simple: the latter are more vulnerable to changes in what is regarded as fashionable at the time.

Geographic location

Location is another factor that can significantly impact the return on investment of a particular project. The cost and maintenance associated with an in-ground swimming pool will, for example, make it harder to recover the installation cost than is the case for many other home improvements. In extreme cases, it might actually deter prospective buyers. This is particularly true if the home is in the northernmost regions of the US. That is unlikely to happen in the southern parts of the nation where long, hot summers are the norm.

The type of home

Type of home should also play an important role in what type of upgrade you decide on. If you, for example, would like to add a family room to your house, take individual family members’ tastes into account. However, don’t become too eccentric. If the design doesn’t harmoniously fit in with the rest of the property’s look and feel, it’s going to be a hard sell. That includes the window styles you choose, the height of the ceilings, and the type of floor.

That is also true in the case of smaller projects. When choosing kitchen flooring, countertops, and cabinets, rather opt for neutral, classic styles and colors. If you want an orange kitchen to go with the orange grout on your fireplace, just be aware that, unless you plan to live with your choice for many years, it’s unlikely that you will find someone who is prepared to pay for your rather bizarre tastes.

This is more a matter of common sense than science though. Of course, a family room should also be a place where your whole family feels relaxed and at home. Everything should be fine as long as you don’t stray too far from the norm.

You don’t have to sell your home to recover the cost of renovations

With a rental property it’s possible to recover refurbishment costs in the form of increased rent without having to sell it. Luckily there is another way in which you can recover at least part of the cost of refurbishing your house. This entails letting the government pay for it.

The government might actually help to subsidize your next home improvement project. This is because it is possible to deduct interest on a mortgage from income taxes. This can go a long way to make the cost of upgrades less of a burden. It can also increase the eventual return on investment.

How to finance a renovation project

As we’ve seen at the start of this article, refurbishing your house can prove to be a costly exercise. Unless you have a chest filled with cash under your bed, you are probably going to need finance. Fortunately, as far as that goes, there are quite a few options to choose from.

A home repair or home remodeling loan

These are unsecured personal loans specifically meant for the homeowner. They are available from online lenders, credit unions, and also from banks. Interest rates might be relatively high.

Credit cards

Using your credit card (or applying for a new one) to cover the cost of refurbishing your house is another possibility. The biggest drawback here is also that interests rates are on the high side.

Secured loans

Should you choose the secure loan option, you can always use a mortgage to fund the cost of home refurbishments. Alternatively, you can apply for a HELOC or Home Equity Line Of Credit. This term refers to a revolving line of credit that is, like a mortgage, backed by your house. Both options typically come with lower interest rates than, for example, credit cards.

Home equity loan

Another option is what is referred to as a home equity loan or second mortgage. This type of loan is paid out in a single sum. It usually comes with a fixed interest rate, and can be repaid over a predetermined time period. It might be a viable contender if you have a clear concept of what you would like to do and how much it is going to cost.

Cash-out refinance

This refers to when your current mortgage is replaced by a new (and of course bigger) home loan in order to make available enough funds to carry out the planned upgrades. Be aware though that there are closing costs involved with this type of loan and your repayment period might have to be increased. If you are able to get a relatively low interest rate, however, this could be one of the most attractive alternatives.

Wrap up

When thinking of refurbishing your house, you should never lose from sight the value you and your family will get from the project – regardless of how much of it you might be able to recover when selling the property.

If you have to choose between two equally desirable refurbishing projects, however, an astute homeowner will start by researching the local property market. Try to find out which projects are most in demand by prospective buyers in your area. These are the ones where you are most likely to get your money back.

Also do not forget that, when it comes to refurbishing your house, bigger is definitely not always better. Depending on where you live, your return on investment on an expensive swimming pool might be much lower than on a small kitchen upgrade.