Moderate Upgrades Outperform Full Renovations

With many upgrades, a full renovation exceeds any amount you might recoup at resale.

For example, homebuyers consistently say modern kitchens and bathrooms are among their top wants. With each renovation, however, complete overhauls offer around 50% in recovered costs. If you spend $80,000 on a kitchen renovation and it adds $40,000 to your home’s value, that’s not a profitable investment.

To make home improvements profitable, you can update moderately and strategically based on homebuyer wants.

Such as:

• With kitchens, homebuyers want a walk-in pantry, table space, a double sink, a drinking water filtration system, pull-out shelves, a central island, and granite or natural stone countertops. 
• With bathrooms, homebuyers want both a shower and tub, a linen closet, and a private toilet compartment. 

How much should you spend on these modest upgrades? Realtor.com data shows that the phrase “renovated kitchen” boosts listings by 7%. For a median-priced home, that’s an average $29,891 increase in value. The terms “remodeled bathroom” and “new bath” each boost listing prices by about 3%.

What are the easiest and quickest improvements that add value?

• Exterior paint. Curb appeal rules in home improvements that deliver value, and a fresh coat of paint in a neutral color can dramatically up a home’s exterior game.
• Landscaping. While luxury landscaping doesn’t provide much ROI, a spruced-up yard with plants and flowers can add significant value. Realtor.com data shows the phrase “new landscaping” increases listing prices by an average of 8.1%.
• New lighting. Easy and inexpensive, new lighting fixtures can make small rooms feel larger and showcase a home. A Zillow survey shows 27% of home sellers upgraded their light fixtures. 
• Smart thermostats. They cost an average of $350 to install and can lower annual utility bills by between $131 and $145.
• Solar panels. They can add thousands of dollars to your home’s value; Zillow reported a 4.1% increase in listing prices for homes with solar panels.

What types of additions add the most value?

Most additions don’t have ROIs that recoup their full costs. However, when you increase a home’s overall square footage or usable heated square footage, you typically increase its value.

Additions that deliver the greatest value include:

• Finished basements. They offer potential ROIs of 70% to 75%. As most basement renovations don’t require major structural changes, they cost relatively less and could even be DIY projects.
• Primary suite. Adding a new primary suite delivers around 50% ROI in most markets. In high-end markets that can go as high as 100%.  
• Deck or patio. Easy to build with a potential ROI of 45% to 55%, backyard wooden decks are a top feature homebuyers seek.
• Bathroom. A bathroom addition recoups about 50% of its construction costs. An extra bathroom, however, can add significant value if the home has fewer than two full baths; only 17% of homebuyers want fewer than two baths. 37% of homebuyers want two full baths. 21% want 2.5 and 26% want more than three.

What home improvements don’t add to home value?

Some home improvement projects could decrease your home’s value.

A few to avoid include:

• In-ground pools. They cost an average of $65,000 to build and typically don’t add nearly that amount to your home’s value.
• Garage conversions. That’s where homebuyers want to park their cars.
• Built-in electronics. Not all homebuyers will see upgrades such as home theaters as assets.
• Sunrooms. Home appraisers typically don’t count prefabricated sunrooms as square footage.
• DIY projects. Any home improvement that doesn’t meet professional standards could turn off homebuyers.

What are the best loans for home improvement investments?

• Home Equity Loans. This loan works best for large projects with predictable costs. You get a lump-sum loan backed by home equity. A type of second mortgage, Home Equity Loans usually have fixed interest rates and repayment terms of up to 30 years.
• Home Equity Line of Credit. Also known as a HELOC, this type of second mortgage complements phased improvements. A HELOC works like a credit card; you can draw from an approved amount as needed, repaying what you borrow monthly. HELOCs usually have variable rates, draw periods typically between five and ten years, and repayment periods typically between ten and 20 years.
• Cash-Out Refinancing. This works best if refinancing your mortgage makes financial sense. Here, you replace your current mortgage with a larger one and take the difference in cash.
• FHA 203(k) Rehab Loan. Backed by the US government, an FHA 203(k) Rehab Loan is designed for buyers or owners of homes needing repairs. You can roll purchase or refinancing costs and renovation costs into one mortgage.

Is now a good time to invest in home improvements?

Yes. Today’s home improvements deliver some of the highest returns on investment in history. And the demand for home remodeling remains solid.