Financial Advice Category
Financial Advice Category

Knowledge Hub

This is a free financial education resource. Some of the products mentioned may not be offered by Horizon Credit Union at this time

The ROI of Home Improvement Projects

The ROI of Home Improvement Projects

One of the most rewarding things about being a homeowner is that you can make changes to your home that will make it a more enjoyable place to live. However, you probably won't be living in your home forever, so it is also worth considering how your home improvement projects will affect your home's value.

The ROI or return on investment of a project tells you how much of the project cost returns to you in the form of a higher home value. The ROI is typically given as a percentage, based on research on home characteristics and sale prices. In most cases, the ROI is less than 100%, which means you spend more on the project than you recoup in the sale price. Therefore, most projects are best done if you still plan to live in the home several more years so you will be able to enjoy the home improvements that you make.

As you consider making home improvements, keep in mind which projects tend to have the highest ROI and which ones will not do much to improve your home value. You do not necessarily need to choose only the projects with a high ROI, but you should at least keep values in mind so you do not face any surprises when you go to sell your home.

Best renovation projects for improving home value

  • Interior painting: If you are willing do the painting yourself, this is one of the few projects that returns over 100% of your investment. In particular, one or two neutral colors painted throughout the house is very appealing to potential buyers.
  • New entry door: Replacing your front door with a reinforced steel entry door has an average 97% return on investment. These types of door are very low maintenance and improve both your home's curb appeal and energy efficiency.
  • New exterior siding: Many homeowners are choosing to replace aging siding with types of exterior siding that require less maintenance over the years. This improvement will boost curb appeal and have an average 80% ROI.
  • Kitchen renovations: These days, the kitchen tends to be the heart of any home. Minor kitchen renovations, like refinishing cabinets, updating hardware and fixtures, and upgrading appliances have an average ROI of 82%. More extensive improvements, which might include new countertops and flooring, offer a lower ROI of about 66%.
  • Attic bedroom conversion: If you are looking to add to your living space, the best return on investment comes from converting your attic into a bedroom. This project has about an 80% ROI because it adds lots of square footage without changing the footprint or profile of your home.
  • Window replacement: Replacing aging windows has about a 75% to 80% ROI. These projects improve the appearance of your home and help with energy efficiency, which are top concerns of many buyers these days.
  • Deck addition: Adding a wooden deck has an average return on investment of 85%, not to mention that it gives you a pleasant place to spend time outdoors. This is an appealing renovation because it adds living space at a very low cost.

Worst renovation projects for improving home value

  • Home office conversion. Converting a spare bedroom into a home office by removing the closet and adding built-in storage might sound like a good idea, but the ROI is only about 45%. This is because many people do not need a home office and would prefer the extra bedroom.
  • Sunroom addition: Adding an enclosed sunroom will return only about 45% of your investment. Overall, you will be better off with just a deck, which is less expensive but has a similar added value.
  • Swimming pool: This is one of the lowest projects for ROI, primarily because potential buyers often don't want the added costs of maintenance and insurance. The actual ROI varies widely depending on your climate and how common pools are in your area.

It is also worth mentioning that nearby home values affect the ROI on all of these projects. Your goal should be to have your home's value about near the median in your neighborhood, rather than pricing yourself out with fancy renovations or skimping in an upscale neighborhood. Through all of this, though, remember that any improvement could be worth it to you if you find personal value and plan to keep the house for a long time.