Doing A Home Improvement Project? Know Your Return On Investment

by Silicon Valley Blogger on 2008-06-2646

How much will your home makeover cost and is it worth it?

With the debate between renting vs owning a home continually raging on, I’d like to chime in with a few advantages to owning a home. Here are some things I particularly like about home ownership:

  • You have the freedom to do whatever you want to your house (within code). I like the fact that I can customize my home at will.
  • You can invest in your home by applying some work to it.
  • You experience good old-fashioned “pride of ownership”.

You can feel a bit better about spending money on your home, knowing that you are contributing to making it more valuable. In many cases, we can remind ourselves that we can “get some of our money back” when it comes time to sell our house. For the majority of homeowners, our homes are our biggest assets, which we don’t have a choice but to maintain. So the assurance — that whatever money and effort we pour into it isn’t a complete waste — is a nice bonus we get with home ownership.

So as someone who loves puttering around the house, doing decorative tweaks as a hobby, I get into home improvement projects for those very reasons:

  • to address the nesting instinct ;)
  • to enjoy the actual process of design, creation and construction inherent in the project
  • to enjoy the positive results and fruits of labor achieved by the project
  • to make my house more valuable.

That last bit about “adding value to my house” has some caveats though. Not all projects will pay for themselves or even put coins in your pocket, so knowing those projects that add value can help you make decisions about where to apply your home budget.

home remodeling, money, build a nest

From readings I’ve made, I picked up this handy list that shows what modifications add to the value of your home, and what may detract.

Things That Add Value To Your House

Stuff that adds value:

  • Kitchen remodel
  • Nice bathroom
  • Decorating your home with elements that have mass appeal
  • Going with local trends: if your neighborhood boasts homes with high-grade appliances, then upgrading yours would be a wise investment
  • Master Suite
  • Curb appeal and landscaping: this will typically account for a 5% to 10% differential in price between your home and similar homes in your area.
  • Good windows
  • Additional storage
  • Basement

Things That May Take Away From Your Home’s Value

Some of these home elements have been called “liabilities”. If your home were to go on sale, these elements may actually turn away potential homebuyers.

  • Swimming Pool
  • Missing or small garage
  • Bad home layout
  • Old appliances and systems (plumbing, electrical infrastructure)
  • Ugly decor
  • Roof in poor condition
  • Location
  • Lack of maintenance
  • Inspection problems such as structural damage or hazards
  • Unusual, custom designs or unique renovations: this may shrink the pool of interested homebuyers
  • Anything that makes your house the most expensive on the block

For more details on those things that can alter the value of your home, check out this Bankrate article.

Return on Investment on Home Improvement Projects

I also came across some return on investment (ROI) details for specific home improvements, which you can see calculated through this nifty HomeGain tool. Here are some results I put together using this tool, and some information from a Demesne (2007 ROI for Home Improvements) article:

Project
Job Cost
Resale Value
Average
ROI
Clean and Declutter
$186
$1,557
837%
Lighten and Brighten
$224
$1,089
486%
Yard Improvements
$611
$1,607
263%
Staging or Improving Room Organization / Furniture Layout
$647
$1,579
244%
Plumbing and Electrical
$464
$849
183%
Surface Updates To Kitchen and Bath
$1,468
$2,173
148%
Paint Interior
$897
$1,202
134%
Flooring
$816
$1,093
134%
Carpeting
$802
$1,027
128%
Paint Exterior
$957
$1,158
121%
Wood Deck Addition
$10,347
$8,835
85.4%
Siding Replacement
$9,910
$8,245
83.2%
Minor Kitchen Remodel
$21,185
$17,576
83%
Window Replacement (wood slightly higher)
$10,750
$8,750
80% avg
Bathroom Remodel
$15,789
$12,366
78.3%
Major Kitchen Remodel
$55,503
$43,363
78.1%
Attic Bedroom Remodel
$46,691
$35,771
76.6%
Basement Remodel
$59,435
$44,661
75.1%
Two-Story Addition
$139,297
$103,010
73.9%
Garage Addition
$53,897
$37,467
69.5%
Family Room Addition
68.6%
Sunroom Addition
59%
Home Office Remodel
57%

And check out this interesting table from Demesne that shows differences in home improvement projects’ ROI depending on geographic location.

Each part of the country has its hot improvements. Where a kitchen or bath remodel can accrue a nifty ROI in the West, note that the hot ticket on the East Coast were improvements that would save energy or maintenance.

Region Return On Investment (Average %)
Highest Midrange Lowest
West Coast Minor Kitchen Remodel=103.5 Bathroom Remodel=96.6 Deck addition=108
Window replacement=100
East Coast Vinyl Siding Replacement=85.5
Window Replacement=77.8
Bathroom Addition=55.4 Home Office Remodel=52.8
Midwest Minor Kitchen Remodel=74.2
Bathroom Remodel=68.6
Deck Addition=75.2 Home Office Remodel=48.1
South Fiber Cement Siding Replacement=89.6
Minor Kitchen Remodel=85
Family Room Addition=74.4 Home Office Remodel=62.8

Note that these are average figures and so any quotes you get may vary widely from these numbers. But the important thing is that we are able to see which projects provide more “value” relative to others, which is one factor to weigh when deciding on how we could utilize our home renovation budget.

If you’re interested in additional resources, there are good books out there that can help prepare you for a home remodeling job or that can give you ideas on how to “dress” your home and get it ready for sale. They may be worth reading before you spend your hard-earned dollars on your home repairs.

Basic Guidelines For Getting The Best ROI On Your Home Improvements

From MSN Money, here’s how to get the best bang for your “home remodeling” buck:

#1 Think like a buyer. Shoppers appreciate neat and clean surroundings!

#2 Spend your budget on those things that are most visible. Apply your money on things you can see before addressing those things that are less visible, unless of course there is an urgent need to fix those things “under the covers”. For instance, if you’re experiencing major trouble with your plumbing pipes, then don’t defer repairs, or problems can escalate with water damage and so forth. But with all things equal, put the money on stuff you can see.

#3 Take care of the easy stuff that have the highest positive impact. Get rid of dirt, trash, clutter, anything nasty that bothers the senses. Resolve those things that can turn people off to your home or bring down its value.

~ooOoo~

So thinking about ROI is all well and good. But remember that house makeovers are not just about doing those things that are most “money-efficient” and which will add value. In our case, our main motivator for making home improvements has been to give our family additional enjoyment. If the changes we’ve made do return us some dollars when we sell our house, then that would be icing… but who knows… with all the work we’ve done to our home, we’d be hard-pressed to ever leave it!

 
Image Credit: Douglas Currie @ pbase.com

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 41 comments… read them below or add one }

Handy Man Fix Home Repair June 26, 2008 at 11:17 pm

Great post!

I am writing a blog about all things related to home improvement and DIY projects… I am trying to cover everything… It is going to take some time to cover it all… but I have a good start….

Stop by and leave a comment if you want me to write a specific DIY project post.

http://www.handymanfixhomerepair.com

Silicon Valley Blogger June 26, 2008 at 11:41 pm

Hi Mr. Handy Man,

I’d love to take you up on your offer! I’ll rack my brain for some DIY article ideas and let you know!

Sentient Money June 27, 2008 at 4:56 am

Great information. Just remember the ROI numbers may change, as the real estate market is a little unsteady right now.

hank June 29, 2008 at 10:12 am

I’m in the process now (tomorrow) of landscaping the yard and putting in a small deck in the back. I don’t plan on selling any time soon, so this is more just to make our home more pleasant for us to kick around in the summer, but I know in the back of my mind I’m thinking it bodes well for the resale also. :)

Austin Real Estate Broker July 11, 2008 at 11:06 pm

When I help a seller prepare a home for sale, I always find it sad that they will do upgrades and maintenance for the new owner, but never have done any of it while they could have enjoyed it. A while back I had a client put in tile, update the carpet and paint, and she said it was such a shame she was leaving because she loved the house now more than ever. My advice is to look at the economic impact of updates, but keep in mind that there are intangibles like quality of life and enjoyment that are hard to put a price on.

joe

Dinar July 14, 2008 at 7:51 pm

You mentioned that a swimming pool is actually a liability and this is so true, most people see a pool as great thing. But do not look at the cost of upkeep, after owning a swimming pool company I can tell you that they can be a pain !

Michael August 8, 2008 at 12:40 pm

Awesome post! I think I’d better get out a broom and a paint brush…

Ed: I don’t typically allow the use of keyword terms on comments, thanks.

Perry Degener August 11, 2008 at 8:27 am

This information was emminently useful. It will come in handy also when we rent our house in Texas.

Rico October 3, 2008 at 3:17 am

Local building codes require a certain number of electrical outlets in a room. However, some electricians will slap the receptacles into the walls in an unattractive configuration when you consider where the phone and cable jacks are going. Tell your electrician exactly where you want the outlets and jacks to be (and how high you want them as well). This is especially true if you have an idea where you want your furniture to go and you want to hide the outlets and jacks behind the furniture.

Rika Susan At Home October 10, 2008 at 4:57 am

This is one of the best and most well-researched articles I have seen on this subject. Thanks! I found it very interesting, especially the ROI details. My parents will have to sell their home soon, so I will keep your tips in mind. They can’t afford expensive improvements, but there are many smaller things that can help.

Mike Paloma October 28, 2008 at 2:44 am

If you do have your own home, spending your money on home improvement is one of the best investments one can make, that’s my personal opinion. Great article indeed.

Seattle Plumbers January 9, 2009 at 6:42 pm

I never thought you could tabulate ROI on home improvements – a very interesting look at how to treat renovation as a whole-hearted investment. From my experience renovators usually go into the “business” aspect of what they’re doing half-heartedly, thinking from their own aesthetic perspectives instead of the buyer’s (as your tip advises against).

I wouldn’t necessarily agree with the swimming pool being clumped with the more obvious liabilities, since it’s a very situational thing. But nevertheless, a very enlightening post, especially with the ROI-tables. Just shows that common-sense cleaning is indeed a good idea, both for the wallet and sanctity of mind : )

DIY Dave February 19, 2009 at 3:32 am

Great blog. Well written and very informative. I like it!!

You are right, home improvement is a great way to make money, as a business or simply in your own home in your spare time. It’s a win win situation. Your home looks and feels better and you add value.

Martin February 19, 2009 at 11:24 am

Excellent post! I love how you broke everything down descriptions, charts, etc.. As a builder and home improvement contractor, I find that more and more customers are choosing green building materials, such as composite decking, vinyl siding, composite handrails, to name a few. I’m bookmarking this site.

Seattle Plumber March 16, 2009 at 1:29 pm

You might want to also add that shoddy work by an non-professional can do more harm than good. Potential buyers will figure if they see one room in a shoddy state, they may exist in other rooms.

Martin April 27, 2009 at 7:58 am

This is sound advice. The worst thing is to devalue your home and it is easy to do. A friend converted a small bedroom into an additional bathroom and this reduced the value of his house when he sold it.

DarrenNg May 30, 2009 at 9:34 pm

I agree that “our homes are our biggest assets”. I prefer more relaxing and comfortable living areas. I’m always look for home improvement project to achieve it. Thanks for sharing ROI of Home Improvement projects.

Max June 17, 2009 at 1:02 pm

Fake stone is a cheap and inexpensive way to make improvements to your home. Things like fireplace mantles or outdoor kitchens add to the value of a home, and can be done for way less with fake stone than real stone.

Tim July 6, 2009 at 11:43 am

Great post. I love all the ideas, will definitely use them.

Thanx

Mary July 6, 2009 at 11:44 am

I think the most important lesson learned in any home remodel/improvement is to think like a buyer so that you get the biggest bang for your buck, unless you intend to spend the rest of your life at your current residence.

Many homeowners spend too much money on home renovations. If you know you won’t be staying at your current home for an extended period of time make small renovations. Paint the wall, add crown molding and possibly new appliances. You would be astounded at the impact new pain and crown molding makes.

Great post/tips.

- Mary

George September 6, 2009 at 4:46 am

Replacement windows add great value to a home both intrinsically, with the reduction in heating bills, and aesthetically, new windows improve a home’s curb appeal, making it more attractive to potential buyers if or when you go to sell.

Owners who install vinyl replacement windows often recoup their investment costs within 5 to 7 years of installation with the energy savings.

Anyway, that’s my 2 cents.

Cheers!
George

Home September 16, 2009 at 3:32 pm

Thanks for sharing the home improvement tips, and I still find it rather strange that a swimming pool is considered by some to not add value with a home. Perhaps not everyone likes a swimming pool like I do!

James Weir September 17, 2009 at 12:56 pm

great information i can use this for my own benefit thanks for everything guys

builder in bucks county September 26, 2009 at 12:16 pm

That’s a great analysis and a very helpful chart. The way that I’ve always looked at renovating is that it’s like a haircut, once you take out that first little, teeny tiny part, you’ve hit the point of no return.

Mark October 26, 2009 at 12:56 pm

Wow, I always thought Vinyl siding had close to a 100% return on investment…this is good info.

Thanks

Keith October 29, 2009 at 7:58 pm

Would have liked to see what adding an aluminum or vinyl fence would have returned….

Tony November 4, 2009 at 11:30 am

Not sure i would try too hard to match neighborhood trends. Nobody really wants their house to look like everyone else’s on the block. And add a hot tub to the list of things that will turn off potential buyers. A hot tub is a money pit, rarely used and a maintenance nightmare. And if the hot tub is on a deck or something it can make matters worse by putting a dent in the wood or causing water damage.

josh cleveland November 5, 2009 at 10:39 pm

I would have liked to have seen what the roi is on insulating a house with either insufficient insulation or no insulation.

B Webb November 9, 2009 at 8:21 am

Great article – I especially like the breakdown ordered by ROI – very helpful if you are looking at selling the house. You make a good point as well that home improvement is also meant to be enjoyed by the family.

Jerry February 5, 2010 at 4:29 am

ROI really is everything when it comes to renovating. The info you’re giving here is a gold mine. Where one is situated in the US makes a huge difference. Like you said, too small of a garage is a big dropper of the house’s value. There are so many factors to take into account but this is an excellent post to get people in the right mindset. It would be so much easier for people to get the most from their homes if they would just read this :)

Amit February 6, 2010 at 7:42 pm

We should make good homes by investing in it, as it is the main asset in our lives (for most of us).

Emily Roesly March 18, 2010 at 8:41 am

Excellent site! You’ve provided a lot of useful information about making the best out of being a homeowner. I needed to read this — after the horrible winter we’ve had, there have been plenty of “forced fix-ups” around here. Thanks for the reminder that even though it was a financial trauma, it is still an investment in our home and increases its value. Thanks!

Holy Ground Electric May 22, 2010 at 5:07 am

Excellent post… as licensed electrician in Tucson, my customers are always looking for the best ROI on all they do to their home. I always tell them to upgrade their light fixtures. It’s the easiest way to make the biggest impact. I’m glad you’ve included the HomeGain chart which is much easier to explain to a customer…notice the almost %500 ROI! Thanks

Ryan June 10, 2010 at 8:48 am

A few of my neighbors invested in the “curb appeal” of their front yards over the past couple years… now that the housing market is starting to show some signs of repair, they are SO glad they bit the bullet and did the work. One just sold for quite a bit more than expected. According to the above chart, yard improvements have an average of 263% ROI?… I would completely agree!

Instant Scrapbook August 5, 2010 at 8:25 am

You have to really be careful when you build a pool thinking that it will increase home values. I have several friends and my folks that have had big difficulty selling their home because they have a pool! Plus the the upkeep on it is a nightmare!!

Diane Fisc September 17, 2010 at 1:48 pm

All great ideas but don’t forget that one of the easiest changes to any room to make a room pop or stand out is lighting. You don’t have to put a lot of money in a floor lamp, table lamp or pendant lighting. Look for a colorful new fused glass that matches your decor or one that will stand out. This will dress up any room or area.

Will October 7, 2010 at 4:49 am

Before doing home improvement project specifically to increase its value, it is important to know the return rate on your investment. Window replacement increases the value and adds energy savings – up to 35% on heating and cooling expenses! With the added curb appeal and beauty from inside, you just can’t go wrong. Thanks for the info!!

Kathy - Air Purifier Reviews November 3, 2010 at 5:12 pm

A really like that table of yours – do you mind if i take it for use in a blog post i am currently putting together. Don’t worry i will link back to you :)

Another thing to add in this topic is the issue with people buying really high end objects to update a house. Spending $1000′s on a hardwood flooring will really eat way at your ROI. Just go for something that looks good and you make far more for each $ spent.

Elliot Ramsey March 22, 2011 at 8:43 am

Great information about home improvement.

When it comes to upgrading the electrical component, there are many benefits, like increasing the value of the home and the aesthetics. However, perhaps the best reason to ensure you have proper wiring is the safety factor. Protecting your investment, and your lives, in priceless.

Oahu Remodeling May 29, 2011 at 2:21 am

Doing A Home Improvement Project in the summer time is best. Every five yrs or so we paint the outside exterior — with base coat white paints from Bher …… :)

David3 December 10, 2011 at 3:53 pm

And as all of us Silicon Valley types are ripping up our houses and rebuilding, we should consider selecting products that are bit more eco-friendly:

Composite countertops (wood, glass, etc.) vs Granite
Alternative roofing materials vs. asphalt
Tubular skylights vs. more light bulbs.

There are a ton of great ideas that I found on GetWithGreen.com. The site is focused on us homeowners who are looking to remodel our small (making them big) homes in the Bay Area.

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