Remodelling a home might seem like a sure way to increase the value of your home, especially if you watch any home renovation shows on TV. The financial goal for any home renovation should be to maximize the increase in property value obtained by the work performed. Ideally, and what is usually shown on TV, the home value will increase by more than the cost of the renovation (i.e., an ROI >100%). Many factors will influence the ROI of a renovation, including the housing market in your area, the value of the home, the cost of the work, and the type of renovation. While some renovations like the replacement of a garage door or steel entry door can generate an ROI of over 100%, an upscale major kitchen remodel will only generate 32% (Baldridge, 2023). The chart below shows the average cost of common renovation projects and their associated ROI.

As we analyze the data, we can determine what projects are the most worthwhile from a financial perspective. Few projects provide an ROI of 100% or greater, so you need to understand that for the most part, home renovations will cost you more than what they will return in home value appreciation. As the cost and scale of the renovation increases, the ROI decreases. For example, an upscale kitchen remodel worth $154,483 will generate an ROI of 32%, while a midrange kitchen remodel costing $77,939 will return 42% (Baldridge, 2023). Other notable observations that return greater ROI include vinyl windows (69%) over wood (61%), asphalt shingles (61%) over metal (49%), vinyl siding (95%) over fiber-cement (89%), wood deck (50%) over composite (40%), and a midrange bath remodel (67%) over upscale (37%). It is important to be aware of these figures to help you make informed decisions to maximize your ROI. Not only should you select renovation projects that will generate a strong ROI, but you should also make sure not to over-build your home. You will want to ensure that you do not put more money into the home than what the neighborhood will return. For example, a $100,000 remodel to a house in a neighborhood full of $150,000 homes will not command the same return as the same investment into a home in a neighborhood with $750,000 homes. The full dataset is in the table below.

References:

Baldridge, R. (2023, August 17). Will Your Home Renovations Pay Off? Investopedia. https://www.investopedia.com/articles/mortgages-real-estate/08/add-value-to-real-estate.asp