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Remodeling? These home projects offer the best return on investment

by Index Investing News
March 28, 2023
in Property
Reading Time: 3 mins read
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Even when they don’t buy a fixer-upper, most people will end up doing some amount of repairs on a new home.

About 95% of homeowners said they plan to take on a major home improvement project in the next five years, according to a recent report by Real Estate Witch. However, only 50% said they can afford it at the moment.

They’ll also likely spend more than they initially expect. The average homeowner shelled out $3,890 on renovations and remodeling in the past year alone, the report found.

In some cases, they may get that money back when it’s time to sell, but not all home renovations deliver the same return on investment.

More from Ask an Advisor

Here are more FA Council perspectives on how to navigate this economy while building wealth.

Overall, homeowners are getting just a 60% return on their renovation investments, according to the recently released 2023 Cost vs. Value report from Zonda Media, a housing market research and analytics firm.

Contrary to what many people think, most of the projects offering the greatest returns in resale value are related to curb appeal rather than more glamorous kitchen and bath remodels.

“You have to throw away everything you see on HGTV,” said Todd Tomalak, Zonda’s principal of building products research. 

Only a few projects can even deliver a 100% return on investment, such as converting a heating, ventilation and air conditioning system to electric, replacing the garage doors, installing a stone veneer and upgrading to a steel front door.

A minor kitchen remodel — such as painting and updating the backsplash — did provide high returns, but major kitchen and bathroom remodels did not, the Zonda survey found.

With high home prices and a tight supply of homes for sale, more people are choosing to fix up their current home rather than look for something new, according to Tomalak.

Do your homework before starting a home project

To get the best bang for your buck, talk to a realtor in your area about specific renovations that could increase the value of your home and which ones to skip, advised Sophia Bera Daigle, CEO and founder of Gen Y Planning, a financial planning firm for millennials.

Always get competitive bids on any project and add 10% as a “buffer,” she said, since extra expenses “will likely come up.”

If you plan to finance a project, look into obtaining a home equity loan or home equity line of credit and factor in the interest rate and potential monthly payment. “Make sure you can work these monthly payments into your budget before you begin,” Bera Daigle said.

Rising costs, delays frustrate homeowners trying to renovate or build

It may make more sense to hold off on a big renovation so that you can save money, pay down debt and see if interest rates go down, added Bera Daigle, a certified financial planner and also a member of CNBC’s Advisor Council.

Finally, consider how long you will stay in your current home and how a renovation will impact your life, Tomalak said.

“If people are moving less often, this shifts the question of remodeling from an investment to the quality of living,” Tomalak added.



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