These home renovation projects generate the best return on investment

Real estate prices have risen so much that many homeowners have decided to stay and improve their own homes.

But even if you’re renovating a home to live in, it’s still important to know what to expect from those upgrades and improvements, and what will ultimately pay off when it comes time to sell it. Homeowners who over-renovate a home may not recover the cost of the improvement.

For example, it’s not the spa-like bathroom or the magazine-worthy custom kitchen that offer the best return on investment, according to a new report by the National Association of Realtors and the National Association of the Remodeling Industry on the impact of home remodeling.

Instead, the interior projects that pay the most are refinishing hardwood floors and installing new hardwood floors.

The report estimates the cost of renovating floors at $3,400 with an estimated return on investment of $5,000, representing 147% cost recovery. The estimated cost of installing hardwood floors is higher at $5,000, but with a return on investment of $6,500, 118% of the cost is recouped, according to the study.

Meanwhile, the cost of a dream project — like the addition of a new primary bedroom suite — can be estimated at $182,000, with only about $100,000 of that cost being recouped, making the ROI the lowest of the projects evaluated at 56%.

Next best return on investment after redoing floors and new hardwood was another decidedly unsexy project: an insulation upgrade. With an estimated price of $2,500, all of these costs should be recouped with a 100% return.

Homeowners who are completely remodeling kitchens and bathrooms can expect around 75% of that cost, according to the report. With an estimated cost of around $80,000, a complete kitchen makeover will fetch around $60,000. and homeowners can expect to recoup about $25,000 of a $35,000 bathroom renovation, about 71% of the project cost.

Renovating a basement into a living space offers a slightly better return. At an estimated cost of $57,500, homeowners can recoup 86% of project costs.

As for exterior improvements, the projects with the best return on investment are replacing the roof and garage doors, both recouping their entire cost.

Homeowners can expect to recover about 86% of the cost of installing vinyl siding and 67% of vinyl windows, but only 63% of wood windows.

The actual cost of any remodeling project and cost recovery is affected by many factors including project design, quality of materials, location, age and condition of the home, and homeowner preferences.

“Quite often, an added benefit of home renovations is the possibility of an increase in the value of the home, which is one reason some people remodel,” Lautz said. “This is particularly beneficial for homeowners who are considering selling their home or converting the home into a rental property.”

While the pandemic shut down much of the economy, home renovations boomed as homeowners remodeled their home for new uses like work and school, despite rising material and labor costs.

Americans spent $420 billion remodeling their homes in 2020, and almost all NARI members saw greater demand for remodeling jobs that year.

Of the homeowners surveyed, 35% hired professionals to do all the work, 28% hired the labor but purchased the materials, and 22% did the entire project themselves.

“Homeowners tend to undertake a remodeling project for a number of reasons,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR. “In some cases, homeowners were content to upgrade a room with a simple coat of paint, while in other cases families decided to take on the task of renovating an entire attic or basement to add additional living space to their home.”

Around 35% of those surveyed stated better functionality and comfort as the most important result of their conversion. Around 22% said they had permanent and long-lasting results, materials and devices, and 14% reported beauty and aesthetics as a result of their makeover.

“The pandemic has changed the way we use our homes, and many of those changes will remain,” Lautz said. “As a result, homeowners have had to reconfigure or redesign the way they use their home and maximize space.”


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