While your home is not exactly an "investment" in every sense of the word, it does have the ability to appreciate (or decline) in value over time.
And, from an investment perspective, making improvements to your house can be a great use of your discretionary income. For example, if you get a $15,000 bonus this year, it's a better financial decision to make some improvements to your home as opposed to taking the family on an expensive vacation.
However, not all improvements are created equal. Some will add more value per dollar spent to your home than others. Here are four improvements that tend to add a lot of value to your home according to Remodeling's 2014 "cost vs. value report", and some that don't make much financial sense at all.
Replacing old siding
If your home's siding is worn or outdated, replacing it could be a good use of your money. Not only can you expect to recoup more than 78% of your investment, but modern siding will last longer and require less maintenance than older materials.
And the return on investment goes up to a whopping 87% if you spend the extra money on upscale fiber-cement siding. It will give your home a high-end look while providing years of durability.
Minor kitchen remodel
The key word here is "minor." A minor kitchen remodel costs about $20,000 and consists of projects such as refacing (not replacing) cabinetry, replacing old appliances with energy-efficient models, and adding new but inexpensive countertops, sinks, and faucets.
The difference between a dated kitchen and a mid-range remodeled one is substantial, and homeowners can expect to make back nearly 83% of the project's cost.
However, luxury kitchens are not quite as financially appealing, with the average upscale major kitchen remodel only returning 63% of the cost.
And another word of caution – the quality of your kitchen should match the rest of the home. If you have a relatively dated 2-bedroom house worth about $125,000, it doesn't make much sense to sink $50,000 into granite countertops, state-of-the-art cabinetry, and high-end appliances. Your ROI (return on investment) will be awful if you do this.
Adding a wood deck to a house will add 87.4% of the project's cost to the value of the home. The average 16 by 20 foot wooden deck costs just under $10,000 to build, and for those who are good do-it-yourselfers, you could save more and create a better ROI by doing some of the work yourself (as long as you know what you're doing).
A new door
While replacing your front door is the lowest-cost project here; it's also the one most likely to pay for itself.
The average steel entry cost $1,162 and homeowners can expect to recoup nearly 97% of the cost of the project. A new door is simply a very inexpensive way to change the look, feel, and initial impressions of your home.
Things not to do
Now, this isn't to say that you shouldn't do any of these things. Just know that you're unlikely to recoup most of your money in increased property value.
For example, converting a room into a home office space has a very low return on investment, as does adding a sunroom. Office spaces are not as widely needed as mobile devices have soared in popularity, and sunrooms aren't the most energy-efficient rooms and can add a lot to your heating and cooling costs.
A swimming pool is one of the worst improvements (financially) that you can make. A relatively basic in-ground pool costs from $20,000 to $60,000, and upscale models can cost much more, and they won't add much value to the home. This varies by market, but pools can be thought of as more of a burden than a bonus by many people.
So, how much of a factor should ROI be?
The projects mentioned here can add significant value to your home, and make your home stand out more to prospective buyers. All of these improvements mentioned are very desirable and are almost expected by house hunters.
The bottom line here is that while the financial return shouldn't be the only factor when doing home improvements (hey, if you really want a pool, get a pool), but it should be taken into consideration, especially if you plan on selling the home anytime in the next several years.