Home Improvement Cost vs. Value: Will Your Project Pay Off?

Choosing the right renovations with a high return on investment (ROI) can help maximize your home's resale value and increase the equity you own. Let’s take a look at some top home improvement projects for a great return, and tips to set you up for success.

May 21, 2024 min read
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Do you know the return on investment (ROI) of your renovation project?

Some renovations can make your home more valuable. However, other projects may provide very little or no return. If you’re investing in a home renovation in hopes of recouping that money when you sell or increasing the equity you own, it’s important to research and plan ahead before you get started to ensure you’re spending your cash wisely.

Home renovation projects of all types are on the rise. In a recent study, 55% of homeowners reported renovating a part of their home in the past year.

But how many of these homeowners will see a return on their investment?

It depends. Getting a full recoup of remodeling costs isn’t very likely. And while smaller DIY projects probably won’t break the bank, homeowners should address whether a project is worth its weight in salt — especially before diving into large-scale remodels.

Keep in mind, though, that you can still potentially increase your home’s equity even if you don’t fully recoup the cost of certain improvements. Equity is the difference between your home’s current market value and the amount you owe on your mortgage. A home upgrade that doesn’t fully pay for itself dollar-for-dollar in terms of an increased selling price may still boost your home’s overall market value, thereby increasing your equity.

10 Home Improvements That Add Value

A way to determine whether a home improvement venture makes sense is to look at the project’s cost vs. its value assessment. This resulting renovation-to-resale-value assessment number can then be used to rank the financial benefit of comparable projects across the country.

Take a look at these popular home improvement projects and their average ROI values. You may be surprised at what tops the list.

HVAC Conversion | Electrification

  • Job Cost: $17,747
  • Resale Value: $18,366
  • Cost Recouped: 103.5%

Garage Door Replacement

  • Job Cost: $4,302
  • Resale Value: $4,418
  • Cost Recouped: 102.7%

Manufactured Stone Veneer

  • Job Cost: $10,925
  • Resale Value: $11,177
  • Cost Recouped: 102.3%

Entry Door Replacement | Steel

  • Job Cost: $2,214
  • Resale Value: $2,235
  • Cost Recouped: 100.9%

Siding Replacement | Vinyl

  • Job Cost: $16,348
  • Resale Value: $15,485
  • Cost Recouped: 94.7%

Siding Replacement | Fiber-Cement

  • Job Cost: $19,361
  • Resale Value: $17,129
  • Cost Recouped: 88.5%

Minor Kitchen Remodel | Midrange

  • Job Cost: $26,790
  • Resale Value: $22,963
  • Cost Recouped: 85.7%

Window Replacement | Vinyl

  • Job Cost: $20,091
  • Resale Value: $13,766
  • Cost Recouped: 68.5%

Bath Remodel | Midrange

  • Job Cost: $24,606
  • Resale Value: $16,413
  • Cost Recouped: 66.7%

Window Replacement | Wood

  • Job Cost: $24,376
  • Resale Value: $14,912
  • Cost Recouped: 61.2%

Source

Pre-Renovation Checklist

Long before you start tearing down walls or ripping up floors, you should consider the following:

  1. Have you budgeted for the renovation costs?
  2. Is the remodel a temporary fix or a long-term lifestyle change?
  3. How long do you plan to live in the home?
  4. Can you afford the renovation if you don’t recoup the full or significant amount of your investment?
  5. How long will the renovation last?
  6. Will the improvements add value to your home equity?

Still unsure if your project is worth the cost? Here’s a more in-depth look at the questions above.

Don’t Guesstimate Your Renovation Budget

No matter how much you try to nail down a renovation budget, there will likely be unforeseen costs along the way. Plan ahead by getting a clear view of how much you can spend.

Talk to contractors, compare their rates and get your priorities in check. It can be fun to spring for granite countertops over laminate when you’re visiting the showroom, but if you need to rewire your electrical system to install the new kitchen appliances later, you may end up wishing you’d chosen more prudently.

Quick Fix or Lifestyle Upgrade?

While the size of a project is largely dependent on budget, in some cases, a quick-fix repair may cost more money over time than a large-scale renovation that solves a major headache.

For example, if mold is growing on your first-floor ceiling due to a leak in an upstairs shower, you may consider replacing the grout as a short-term, low-cost solution. However, you should have the house inspected to determine the best way to address the issue — mold can be a more extensive problem than first meets the eye. Depending on the damage, you may need to completely redo the tile, drain and pipes and you could require professional mold remediation.

Getting professional advice now will help you pass an inspection later in case you decide to sell.

Will You Stay — A Forever Home or Prepping for a Sale?

If you're preparing to put your home on the market, ensure your renovations appeal to buyers. One of the biggest misconceptions among homeowners is that major home improvements equate to more money in the final sale. That’s not always the case. If you’re planning to stay in your home for several years, make sure you can realistically live with the changes long term.

Research Your Project’s Regional ROI

It’s essential to consider the value of renovations in your region — not just on a national scale. In colder climates, energy efficiency projects may reap more value, while a swimming pool may dissuade buyers. On the other hand, in warmer regions, a pool may attract buyers to your home.

Adding additional rooms or square footage is one of the most impactful ways to increase your home’s value. An appraiser will be able to compare your home to those in your area who fall into the larger square footage category. Additional space can be used as an office, playroom or entertainment area, making it a worthwhile investment. Just be sure to check with your local building department or city/county planning office about any permits that may be needed before you begin your project.

Considerations of Living Onsite While Renovating

Home improvement projects can get stressful and can’t always be completed over the weekend. Be sure to plan a realistic project timeline and make arrangements to get through the renovation chaos. With major renovations, it’s often pragmatic to set aside funds. If you’ll have to spend several hours away from home while the contractors complete their work, you may need to stay overnight in a hotel or plan a fun day out.

Also, be aware that when renovating or doing major construction on your home, you will be unable to refinance during that time. This is because an appraisal is typically required, and the home must be in safe and functional condition.

Increased Home Equity Benefits

Sometimes, home improvement projects solely benefit you — and that’s OK! Increasing your home’s value has several benefits. If you’re staying in your home, you might be able to apply the equity to secure a home equity loan (HEL) or even a cash-out refinance to help pay off high-interest debt, fund college tuition or purchase a new car, for example.

If your home is on the market, your home improvements could help it sell faster and for more money. However, keep in mind that if you want to attract investors, most require a home listing to be off the market for a certain period of time before they can consider investing in it. Typically, this time ranges anywhere from six months to a year, even if the home was only listed on the market for one day.

Remodeling Mistakes to Avoid

When it comes to making home improvements, too often homeowners rely on instinct rather than research to decide which projects to embark on. So, while converting the garage to an extra bedroom might at first thought seem like a good idea, the reality is that the inconvenience of street parking isn’t likely to entice a potential homebuyer anytime soon.

Here are some other remodeling mistakes you’ll want to avoid:

Underestimating project costs — It’s important to fully understand your project’s size, scope and complexity. Consider the supplies, skilled professionals, inspections and permits that may be required, and any systems, such as electrical or plumbing, that will be affected and impact your costs.

Not anticipating issues — Things don’t always go according to plan. Ensure you have a buffer of funds to manage unexpected issues that may arise.

Having an unrealistic timeline — Full gut renovations can take months to design and build, which can lead to higher labor costs. Can you live in your home through the renovation if it takes longer than anticipated? Do you have a contingency plan?

Not doing your research — If you want to enhance your home's resale value, do your homework to ensure your upgrades will help you maximize your investment.

Don’t Rely on Reality TV for Ideas

Did you know that one of the most valuable home investments is adding fiberglass insulation to a home’s attic?

Probably not. But watching contractors stuff the ceiling with insulation on popular home improvement shows just isn’t as interesting as watching designers discuss the layout of a total kitchen overhaul, complete with high-end fixtures, granite countertops and top-of-the-line commercial-grade appliances.

An overly pricey, sophisticated kitchen may backfire once a home is back on the market. A minor kitchen remodel, on the other hand, such as painting the cupboards or replacing laminate flooring with ceramic tiling, not only provides a more cost-effective solution for homeowners, but may also yield a higher return on their investment. Painting kitchen cabinets is an inexpensive cost to a homeowner because they can be painted on-site instead of at a warehouse and then shipped.

Make Your Home Improvement Plan

Whether you’re a first-time homeowner with a growing family or about to retire and looking to sell and downsize, it’s important to understand which home improvement projects make the most sense for you.

If you’re renovating with ROI in mind, consider how prospective homebuyers will view your interior, exterior, outdoor space and landscaping. Focus on projects that improve your home's functionality and appeal to a wide range of buyers. And remember, even relatively small renovations can still increase your home's value and equity.

Talk to a real estate agent to get their guidance on which projects may have the biggest impact on your home's value. If you’re ready to begin your next exciting remodeling project, consider using your existing home equity to fund it through a home equity loan or cash-out refinance. Connect with a Pennymac Loan Expert to find the option that’s right for you.

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home equity appraisal fundamentals

Bradley Thompson
Afton Lambert

Meet Our Contributing Editors

Bradley Thompson and Afton Lambert are Contributing Editors for Pennymac’s consumer content and are exemplary leaders within the mortgage industry space. Both experts take pride in helping our customers achieve and sustain their aspirations of home.

For over 13 years, Bradley has achieved success as a high performer in various leadership roles including consumer direct sales and mortgage fulfillment positions.

With over 10 years of mortgage experience, Afton started her career as a top performing Loan Officer, before transitioning into her leadership role, where she has recruited, hired and trained Loan Officers.

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