Generating Value through Home Renovations
Which Renovation Adds the Most Value to Your Home?
There are many ways to add value to your home, but few offer the same returns as adding a new fireplace. Typically home projects return less than half their investment value in increased property valuation. A new fireplace however, can return up to 91% of its investment in the form of increased home valuation. A fireplace is a universally loved appliance and adding a new one to any home is a smart investment, not just for you to enjoy, but also for your wallet!
Somewhat counter-intuitively, the larger scale the renovation the less cost you will be able to recover. According to data from Hanley Wood Media Inc., the bigger the renovation the less of the work and unseen materials people can see and therefore are unwilling to pay for. The same goes for things that are deemed as “the basics”. Things that people assume are working like the hot water heater, plumbing, and gutters add little resale value to your home as people cannot see it and think of it as the bare minimum. To get the biggest bang for your buck, focus on the things that can be easily seen.
Note: Returns or Return on Investment (ROI) refers to the amount of initial cost that can be recouped during resale of the home. Although some projects may add more total value to your home they may be costly and the percentage that is recovered within 2 years will be lower.
Example Calculation: Cost = $1,000 Additional Resale Value = $500 the ROI = 50%.
Here is a breakdown of the best returns available from home renovation projects:
New Fireplace – 91% ROI[i]
Fireplaces are the #1 most sought after feature of a home[i]. Therefore it stands to reason that the money spent to install a new fireplace will be returned at a later date whenever you choose to sell. Money spent on a fireplace is a fantastic way to not only add warmth and comfort to your home but also long term valxue, even more so if you are adding a second or third fireplace to your bedroom or bathroom!
If you add a second or third fireplace to a home you will see even greater returns. Less than 15% of new homes in the US have two or more fireplaces[ii] and according to the National Association of Realtors (NAR) each additional fireplace can increase asking price by as much as 12% in certain areas![iii
Siding Replacement – 75.6% ROI[i]
As the second best return on your investment, replacing the siding on your house can yield a 75.6% return. Not only does this update the look and feel of the entire house, it also makes sense financially. It updates the curb appeal of your home, can dramatically change the look and feel of a home and provides strong returns.
New Windows – 70.8% ROI[i]
New Wood Windows can provide an ROI of up to 70.8% whereas Vinyl can provide a 73.4% ROI. Both are great options from an investment standpoint. In addition to generating a return for your investment, new windows will also help decrease your energy consumption and your utility bills. From a purely financial standpoint, replacing your windows is potentially one of the best renovations you can undertake for your home; that is aside from upgrading your fireplace of course!
Roofing Replacement – 68.2% ROI[i]
A roof is one of the rare exceptions where people are willing to pay for both something they rarely, if ever, see, and for something that is considered standard maintenance. Replacing a roof is a huge headache; especially if it is leaking increasing repair costs for both the roof and the water damage. Therefore, homebuyers are willing to pay more knowing that a roof has been replaced recently knowing they will likely not have to deal with it for another 15+ years. The materials used to replace the roof also offer different ROIs with Metal sitting around 60.9% and Asphalt around 68.2%.
Kitchen Remodel – 62.1% ROI[i]
Although minor kitchen renovations (updating cupboard faces, new countertops, new appliances, etc) yield a higher return on investment (Approx. 80%[i]), major renovations involving major construction tend to cost more and therefore less of your investment is recovered during the sale of the home. Purchasers are willing to pay for what they see, and not the rest. According to the National Association of Realtors (NAR) however, an outdated kitchen is a non-starter for many buyers and therefore you may want to go ahead and update your kitchen regardless of its ROI.
Bathroom Remodel – 60.2% ROI[i]
While updating your bathroom is a good way to add value to your home, similar to a kitchen remodel the larger the scale, the less money you can expect to recoup. Small updates can provide larger returns but the more intensive the remodel the lower the returns become. Again according to National Association of Realtors (NAR), an outdated bathroom could be a non-starter for many home buyers.
Bedroom Addition – 55.0% ROI[i]
Depending on your home, its layout, and the perceived need for a new room the addition of a new room can add tremendous value to your home, however, if a room is added when it is not needed it can actually decrease the value by reducing usable space.
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According to Marshall & Swift’s Appraiser Handbook https://www.corelogic.com/products/residential-cost-handbook.aspx