Improving your home is fun. Sure, it’s also a hassle: getting referrals for contractors, making appointments for them to bid on your project, and disrupting your routine can be stressful. But when the last truck has rolled away and you’re admiring your shiny new renovation in peace and quiet, all the trouble usually seems worth it.
An uncomfortable truth many of us don’t want to acknowledge, however, is that our desired home improvements aren’t always financially worth it. In fact, several industry surveys show that they generally aren’t. If getting a return on your investment and not just a more pleasant place to live is important to you, here’s what you should know about making sure your home improvement pays off.
Home improvements: Practical vs. enjoyable
Remodeling magazine’s yearly Cost vs. Value Report consistently finds that less exciting upgrades like installing a new garage door or adding manufactured stone veneer to your home’s exterior, have the highest return on investment when homeowners sell — and even those projects bring slightly negative returns. However, most owners don’t just care about ROI.
“Yes, it’s certainly prudent to consider what — if any — return on investment a certain home improvement will bring you in the long term, but it’s also critical to create a home atmosphere or vibe that makes your home more livable and brings you joy,” said Jenny Usaj, the employing broker and co-owner of Usaj Realty, a boutique residential real estate firm located in Lower Downtown Denver and Vail, Colorado. She said that while it’s wise to make practical improvements, like a new roof, HVAC system, or water heater, you also want to make your home more comfortable and appealing.
One way to create more room in your budget for the appealing projects is by paying careful attention to home maintenance and repairs.
“Allot about one percent of your home’s value to be spent every year on home repairs,” said Judy Blackston, a financial professional in Savannah, Georgia, with Coastal Wealth, a MassMutual firm. “If you do need repairs, the best way to make sure that you are given a fair quote is by reputation. Seek referrals from friends and neighbors.”
To offer a few examples, twice-annual professional maintenance can extend the life of your heating and cooling system. Keeping your gutters clear helps ward off water damage to foundations and basements. Regular termite inspections can prevent costly fumigation and wood repair work.
Kitchens and bathrooms
Kitchen and bathroom remodeling were the most popular interior projects in 2020, according to the 2021 Houzz & Home survey, the largest publicly available survey of residential remodeling, building, and decorating activity in the United States.
Similarly, Realtors® ranked kitchen renovations at the top of their lists of improvements that are most likely to appeal to buyers and to increase a home’s resale value in the 2019 Remodeling Impact Report produced by the National Association of Realtors® and the National Association of the Remodeling Industry.
Twenty percent of Realtors® surveyed said a kitchen renovation helped close a sale, though only four percent said the same of a bathroom renovation. This survey also found kitchen and bath upgrades to be some of the most emotionally rewarding projects for homeowners. (Related: Should you accept a loan from your parents?)
Industry surveys come up with vastly different cost estimates for typical kitchen and bath remodeling projects, but similarly low ROIs of around 50 percent to 70 percent. To break even, you’d need an ROI of 100 percent.
Usaj said that while she thinks it’s fine to look at those reports, homeowners should make improvements that make them happy.
“Some consideration should be given to whether the upgrade will be viewed favorably by the next owner, but assuming any improvement is done tastefully, there is little that can’t be changed down the road,” she added.
However, “updated kitchens and bathrooms are still going to go a long way when considering the list price of a home, and those are improvements you can enjoy as well,” Usaj said.
Another benefit of these projects is that they’re quick to complete once you’ve hired designers and contractors. Assuming you purchase the materials up front, the industry average time to remodel a kitchen is about six to eight weeks, while a bathroom renovation could take as little as three to four weeks, depending on the size of the space, said Bill Darcy, CEO of the National Kitchen and Bath Association.
Homeowners have many options for improving their outdoor space. Landscaping that improves curb appeal is the most likely way to increase your home’s sale price, and the changes don’t have to be complicated or expensive if your yard is in decent shape.
Hiring a professional gardener who can maintain your landscaping more efficiently, more frequently, and more skillfully than you can makes a big difference. Weekly service may cost as little as $30. Adding colorful perennial plants appropriate for your climate can improve your curb appeal year after year. Trees can provide shade to make outdoor time more pleasant while keeping your home cooler and cutting energy bills. Privacy hedges can help your yard feel like a private retreat instead of a fish bowl.
“Here in Denver, it’s a good bet that any improvements to outdoor spaces will pay off,” Usaj said. “Most people who live here enjoy being outside and having a pleasing patio or deck where you can relax and entertain is highly valued.”
The national average ROI for adding a wood deck was 66 percent in 2020, with an average project cost of $16,766, according to Remodeling magazine’s 2021 Cost vs. Value Report. In Denver, it was 74.9 percent, with an average project cost of $16,095. In fact, most of the magazine’s 22 projects have a better ROI in Denver than the national average, and it was actually a down year for the return on this project due to a spike in lumber prices. (Related: What to do with real estate proceeds?)
Swimming pools: An expensive luxury
Expect to spend $20,000 or more to add an in-ground pool to your backyard. The cost will depend on size, material type, labor, heating, filtration, and extra features like waterfalls, hot tubs, enclosures, and covers. Plus, you may want to upgrade the patio and landscaping around your pool to complete your backyard oasis.
“While everyone loves access to a pool, once again, it’s important to evaluate whether it will be a good investment long term,” Usaj said. “If you’re the only person in the neighborhood who owns a pool, it may improve your social status, but the cost may not be recouped when you sell. And the maintenance costs can be killer.”
Many homeowners spend at least $1,200 a year to maintain a pool. In addition, the pool’s pump and heater can increase utility bills. Plus, there are occasional repairs: replacing your pool pump, repairing cracks, and resurfacing your pool.
Another ongoing cost is more homeowner’s insurance coverage. Adding a pool increases the risk that someone could get injured (or drown) on your property, which means you may need to increase your liability coverage. You may also need more coverage under the Dwelling, Additional Structures, or Personal Property sections of your policy to insure the pool itself.
Improvements immediately after buying or before selling
It can be hard to make rational decisions about home improvements in the heightened emotions following a home purchase or before listing your home for sale. Consider these guidelines.
If you just bought your home, wait. “I’m a strong advocate of living in a house for a full year before doing anything dramatic,” Usaj suggested. It makes sense to address broken appliances or failing mechanisms right away, but when it comes to additions and remodels, take the time to see what the experience of actually living in the home is like. It can also be helpful to see what your neighbors have or have not done, especially if you’re thinking about reselling.
Owners of smaller, older properties in neighborhoods undergoing major transformations may ultimately sell to someone who will tear down the house to rebuild something bigger. Affordable improvements that enhance your quality of life may still make sense, upgrades for future owners may not. (Related: What to consider when buying your first home)
If you’re about to sell your home, think twice about upgrades. “Unless there is something impacting the safety or operation of the house, I am not in favor of major improvements prior to listing a home,” Usaj said. While a new coat of paint is always advisable, new owners will likely make changes to suit their own tastes, so focus on improvements like replacing an aging garage door, fixing drafty windows, making sure all the light switches work, and having the HVAC system cleaned and serviced.
Still, a 2020 Coldwell Banker survey found that 80 percent of Americans would prefer to buy a move-in-ready home that doesn’t require any updating, and a majority would sacrifice square footage if it meant not having to make any updates. (Discover: Selling your first home: 4 issues to think about)
ROI: Housing market vs. personal
The calculations behind your return on investment from a home improvement project change if your purpose isn’t merely to increase the home’s potential resale value. Certain home improvements can have a large personal ROI if they allow you to adapt your home to your changing needs instead of moving.
This logic might apply if you’ve decided to take in a family member, such as an aging parent. (See Four financial considerations when Mom or Dad moves in.) The cost of expanding or adapting your home to accommodate another person and their needs could be less than the cost for them to live in a senior home. Similarly, modifying your home so you can age in place might be a better financial decision than moving. (Related: How to project the costs of aging in place)
Younger people who are expanding their families and want more space for children also might find renovating a better option than moving. However, the 2019 Remodeling Impact Report found that 35 percent of homeowners would rather move than renovate.
How do you decide? Consider these factors:
- The availability of other homes that would suit your new needs.
- The real estate commissions and moving costs you would pay to sell.
- Whether your property has enough space to accommodate a larger home.
- Whether local zoning laws and your homeowners association will allow you to modify your home how you want.
- How your property taxes would change if you moved.
- Your timeline.
- Your emotional attachment to your home or neighborhood.
- The closing costs and interest rate on a new mortgage.
- The cost to renovate, including any financing.
“When remodeling for yourself, it truly comes down to falling in love with the space again,” Darcy said. “The creative freedom can be overwhelming at first, but when the renovation is complete, homeowners tend to feel a combination of a sense of accomplishment in their work and a newfound pride in their home.”
When remodeling for financial gain, it’s tricky to tell if a project will pay off. Averages are just a guide, and they can’t predict the impact of a given project on a specific home in a particular neighborhood. These broader trends can give you a general idea, though, about whether you should look at a project as being mostly for your own enjoyment rather than as a financial investment.
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