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When you renovate or upgrade your home, there are a few things to consider before deciding the best way to spend your renovation dollars. For example, will the project make your home more functional or an overall better place to live? If you have four bedrooms and one bathroom, adding a second bathroom might tremendously improve the general living conditions of your home.
There's also the consideration of keeping everything in a good state of repair and replacing worn-out components of your home. A roof replacement won't necessarily improve the functionality of your home (unless the old one is falling apart), but it can give you the peace of mind that you won't have to worry about leaks anytime soon.
Last, but certainly not least, is the issue of cost versus value added. Many popular home renovation projects are expensive. The National Association of Realtors estimates that:
- the average complete kitchen renovation costs $68,000,
- the average bathroom renovation costs $35,000, and
- you can expect to spend $80,000 converting an attic into a usable living space.
It's important to know how much of that money you're truly "spending" and how much you can expect to recoup in the form of increased home value. I don't know about you, but I'd much rather spend $50,000 to increase my home's value by $50,000 than spend $20,000 to increase its value by $10,000. And you might be shocked at how much more effective some projects are than others when it comes to adding value.
Before we get into specific renovations and how they're likely to affect your home's value, here are four broad categories where you'll generally be putting your renovation dollars to good use.
Add living space
Additional living space is perhaps the most obvious way to add value to your home. Size is one of the most important factors in determining a home's value. For example, if you have a 2,000-square-foot home and houses in your neighborhood are consistently selling for about $100 per square foot, adding a 200-square-foot room to the house can reasonably be expected to add $20,000 in value.
The unknown factor when it comes to adding space is construction costs. If the cost of adding square footage is lower than the prevailing per-square-foot market price, this can be a fantastic return on investment (ROI). If homes in your area are selling for $500 per square foot and it costs $150 per square foot to build an addition, it's tough to argue against doing so. On the other hand, if an addition costs $150 per square foot and adds $100 per square foot in value, you might be better off spending your money elsewhere.
For this reason, adding square footage can be especially effective in markets where home prices are very high.
Make your home a more attractive place to live
The second category of value-adding improvements is those that make your home a more attractive place to live, or -- as real estate professionals say -- enhance its curb appeal. If overgrown tree branches block the view of your home or it's been years since you last pressure washed the exterior of your home, small expenses can pay for themselves when it comes to adding value.
Landscaping is another area where homeowners often get a strong ROI. Ultra-elaborate landscaping and projects that are very taste-specific tend to be poor value-adds, but spending a few thousand dollars on making your property more attractive can go a long way.
When it comes to the interior, the best places to try and improve the appearance of your home are the areas that potential buyers expect to be aesthetically pleasing: the kitchen and bathrooms.
This is also a good time to mention that many of the renovations we'll cover in this guide could fit into multiple categories. For example, a bathroom remodel can make your house more attractive, but could also modernize your home and improve its efficiency, which we'll discuss in the next few sections.
Modernize your home's components
Another renovation theme that tends to add value is modernizing the home. Buyers don’t want kitchens that look like they're from the 1980s.
There are a variety of possible modernizing improvements. House siding has advanced tremendously over the past few decades, for example. Replacing worn-out vinyl siding with one of the latest materials could be a great way to invest in your home.
The same can be said for any smart home technology (within reason). While you probably won't get your money back by installing remote-controlled lighting in every room, something as simple as replacing an old thermostat with a WiFi-connected smart thermostat can make your home seem much more modern and requires little more than a trip to your local home improvement store.
Flooring is another one to keep in mind. When compared with beautiful hardwoods, carpet isn't terribly attractive and is often not what modern buyers want, especially throughout main living spaces.
If you're curious what's "in" right now, Zillow published an excellent 2019 Design Forecast that can give you some good ideas for how to modernize your home.
The last general category of value-adding improvements is improving the efficiency of your home and thereby lowering the energy costs of owning. Swapping out an old water heater for a modern tankless unit is a great example of an upgrade that can significantly raise your equity. Solar panels are another possible way to go.
Energy-efficient appliances not only appeal to buyers who want lower utility bills, but also make your home more attractive. And windows have become far more efficient at insulating homes from the elements over the past few decades, so if you have a house full of old windows, replacing them can be a smart use of your renovation dollars.
How to add value to your home: 10 proven ways
Now let's look at some hard numbers. There are a few reliable real estate surveys that do a great job of comparing the average cost of renovations or upgrades with the market value recouped by the homeowner. Two excellent examples that are published annually are Remodeling's Cost vs. Value Report and the National Association of Realtors' Remodeling Impact Report. In no particular order, here are 10 of the highest-value home renovations you can make.
1. Window replacement
Both reports found that window replacements are likely to produce a nice ROI for owners, especially when it comes to modern vinyl windows. Remodeling and the NAR found that owners recoup more than 70% of the cost of new vinyl windows.
When you combine this increased home value with the savings you'll get from the new windows' energy efficiency, this can be a great way to use your renovation budget.
2. Siding replacements
Spending money on things that make your home more attractive and more modern are generally smart renovation projects, and siding upgrades check both of these boxes.
Remodeling found that adding a midrange siding replacement delivered a 76% ROI, while the National Association of Realtors found the same return from durable fiber-cement siding. And although a manufactured stone veneer may seem expensive at an average cost of more than $8,900, the average homeowner recoups an impressive 95% of this expense in the form of increased home equity.
3. Minor kitchen remodel
Kitchens are a major selling point for people when shopping for a new home. Your kitchen can be one of the best places to spend your renovation dollars, but don't go overboard.
Specifically, you can expect a minor kitchen remodel (refacing cabinets, replacing countertops, new faucets, new appliances, and so on) to recoup more than 80% of its value in the form of increased home equity, according to Remodeling's report. On the other hand, a major kitchen remodel will cost about three times as much and you'll be lucky to recoup more than 60% of the cost when you sell your home.
4. Garage door replacement
Year after year, this is one of the top value-adding projects on Remodeling's report. The average upscale garage door costs about $3,600 to install and homeowners can expect to recoup virtually all of this expense (98%) upon the sale of their home. This is a perfect example of adding something that makes your home far more attractive.
This is also an ideal opportunity to introduce the caveat of "if your home needs it." If you have a modern home with a new, but midrange, garage door, you might not add quite as much value to your home with an upscale replacement. On the other hand, if your garage door was last replaced in the 1990s and has several dents from baseballs and other objects hitting it, that's a great opportunity to add value.
The same caveat applies to many of the other high-value renovation projects on this list.
5. Deck addition
Adding a new deck in your backyard can be a smart way to add value to your home, but think twice before you spend the extra money on composite materials. The ROI on a wood deck is 76% on average, compared with 69% for a more expensive composite deck.
Of course, if you're planning to stay in the home for years to come, it could still be worth spending the extra money on composite decking, which tends to be far more durable than wood.
6. Insulation upgrade
If your home's insulation isn't as modern or effective as it could be, spending the money to upgrade it can be a good idea.
According to the National Association of Realtors, the average homeowner recovers 83% of the cost of an insulation upgrade. That's not counting the savings from the increased energy efficiency of the home.
7. Flooring upgrades
Remember how I mentioned that buyers find hardwood floors more desirable than carpet? Well, here's the proof: The average homeowner who installed new wood flooring recouped an amazing 106% of the project's cost.
If you already had hardwoods but they've seen better days, refinishing existing hardwood floors delivers 100% of its cost in added resale value, on average.
8. New HVAC system
More than half of homeowners say that they replace their HVAC system to improve the energy efficiency of their home and lower their energy bills, but that's not the only reason you might want to swap out your outdated system.
The average homeowner recoups 85% of the project's cost upon the sale of their home. After all, the last thing a buyer wants is central air conditioning that could break at any time or high electric and gas bills due to an inefficient HVAC system.
9. New front door
Both reports found that homeowners could dramatically improve the appearance of their home by replacing the front door and that the average homeowner recoups about three-fourths of the cost.
This ROI can be magnified even further if your current door is outdated, worn out, or if its functionality isn't great (if the locks are difficult to open, for example).
10. New roofing
Last but certainly not least, if your roof is nearing the end of its useful lifespan, replacing it could be the best possible way to spend your renovation funds. For one thing, a roof can be far less expensive to replace before it starts leaking and causing problems.
What's more, the average homeowner recoups 107% of the new roof's cost in improved equity, according to the National Association of Realtors.
Furthermore, a roof is one of the most important concerns in the eyes of buyers. 33% of Realtors say that a roof replacement directly helped close a home sale.
3 home renovations and upgrades that won't add a lot of value
If you're trying to figure out how to add value to your home, there are some projects you should avoid. Here are a few of the most common projects:
1. In-ground swimming pool
Not only does the average in-ground pool only add 43% of its cost to the value of the home, but pools have considerable ongoing maintenance costs that you need to consider. Plus, in many parts of the U.S., pools can be a turn-off to potential buyers.
Pools are typically one of those home improvements you should only do because you really want a pool, because returns can vary dramatically by location.
Master suite addition
This may seem counterintuitive since I previously said that adding square footage is one of the best ways to add value to your home. However, master suites can be extremely expensive -- the National Association of Realtors estimates that the average master suite addition costs $150,000, and both reports agree that you'll be lucky to recoup half the cost of such a project.
A similar ROI applies to bathroom additions as well. These are some of the more expensive spaces to construct, as opposed to simply adding a more basic space, like a living room.
The National Association of Realtors estimates that the average ROI from a closet renovation is a paltry 40%. Simply put, the average closet renovation is expensive ($6,300) and buyers don't put much emphasis on closets when making decisions. In fact, not one Realtor surveyed said that a closet renovation helped close a sale.
To be fair, this list only refers to your financial ROI from doing these renovations or upgrades -- and that might not be your primary concern. For example, if you like to swim and plan to be in your house for at least another decade, the amount of equity a pool would add likely isn't your primary concern.
Consider your local real estate market
Keep in mind that these two lists are based on national averages. The return on investment you can expect from home renovations depends on a variety of factors and can vary significantly depending on your unique circumstances. Specifically, you should take into account the following:
- Your location: For example, the list mentions that pools are generally a bad use of money in terms of adding value. However, the ROI of adding a pool in South Florida and adding a pool in the suburbs of Chicago can be very different.
- The type of home you own: Do you have a condo, small single-family home, or high-end luxury home? Spending $100,000 on a very fancy kitchen might not make sense if you have a starter home worth $200,000, but could be a much wiser investment if you have a million-dollar executive home where ultra-high-end kitchens are expected. Similarly, a kitchen remodel could be more effective if you're replacing a 50-year-old kitchen rather than one that's still relatively modern.
- Other local variables: For example, having a place to store a boat might be a silly use of space in many areas, but I live next to a major lake, so this could be a value-adding home improvement for me. If your home has amazing views, adding floor-to-ceiling windows could be a much better value-add than it would be in an average home.
On the other hand, some of these improvements (a moderate bath or kitchen remodel, for example) are pretty universal. If you're curious about a particular renovation's potential impact on your home's value, the best idea could be to ask the opinion of a local real estate agent or broker.
Home renovations are just one piece of the puzzle
As a final thought, keep in mind that while the return on your renovation investment is important, it's not the only concern -- especially if you plan on living in your home for several years or more. Make sure you're getting a decent return, but also make sure that your home will be a nicer, more functional, and better-maintained place to be when the project is complete.