Q: Which home improvements have the highest Return On Investment (ROI)? I am looking forward to my tax refund and starting some projects but not sure which ones should be top priority. Can you please let me know the top 5 projects that bring in the most ROI for my home?
A: There are many factors when choosing which renovation projects will improve your home and its value. Why not follow the experts from Remodeling Magazine and the National Association of Realtors as they do a research study each year to help homeowners make these decisions based on the current market trends, costs and return on investment? For this reason I am going to review the results from these two experts, but first I want to explain the difference between “replacement” and “remodeling” projects and why this should matter to you.
Replacement vs. Remodeling
According to Remodeling Magazine, “Replacement jobs—such as door, window, and siding projects—generated a higher return than remodeling projects. Replacement projects averaged a return of 61.5% while remodeling projects scored 57.3%.” When grouped by job type, replacement projects such as window and siding jobs (77-80% ROI) performed better than kitchen and bath remodels (60-65% ROI), perhaps because of curb appeal, rising new-home prices, energy efficiency and job size. It is important to note that 12 out of the 15 highest-scoring projects were for exterior home improvement projects. This may explain why were constantly bombarded by news (and Pinterest) articles claiming “5 Ways To Boost Your Home’s Curb Appeal” and real estate professionals touting the value of Curb Appeal. Generally, the simpler and lower-cost the project is, the bigger the cost-value ratio because the simpler projects tend to require less time and are performed by a skilled professional contractor. For example, it is easier (and less expensive) to replace a fiberglass entry door than it is to research, design, source contractors, and build a full kitchen remodel.
According to the 2016 Remodeling Magazine’s Cost Vs Value report, which has been doing theorectical comparisons of home remodeling and replacement projects for decades, the average cost and average return in this year’s report resulted in an avergae increase to 64.4% ROI which is the second-highest return in the past eight years. That is an average of 4.7% increase this year! Also important to note is that 4/5 gains were in upscale projects such as fiberglass entry doors which were up by 21.2%! It’s important to note that this ROI is to reflect resale value within 12 months of the project.
So What Topped The List?
These were the top home improvement projects-midrange and upscale- that will bring you the highest ROI according to the 2015 Remodeling Magazine’s Cost vs Value report:
Both Midrange and Upscale
- Fiberglass Attic Insulation 143.8% (M)
- Manufactured Stone Veneer 86.8% (M)
- Garage Door 91.7% (M)
- Entry Door Replacement– Steel 94.8% (M)
- Garage Door 94.3% (U)
- Minor Kitchen Remodel (M) 83.2%
- Entry Door Replacement- Fiberglass 80.7% (U)
- Siding Replacement-Engineered 83% (M)
- Siding Replacement-Fiber Cement 78.6% (M)
- Deck Addition (Wood) 73.9% (M)
- Fiberglass Attic Insulation 143.8%
- Entry Door Replacement- Steel 94.8%
- Garage Door 91.7%
- Manufactured Stone Veneer 86.8%
- Siding Replacement-Engineered 83%
- Minor Kitchen Remodel 83%
- Siding- Foam-Backed 71.3%
- Deck Addition Composite 68.4%
- Family Room 68.3%
- Roofing Replacement 66.9%
- Garage Door 94.3%
- Entry Door Replacement- Fiberglass 80.7%
- Window Replacement-Vinyl 77.5%
- Window Replacement- Wood 72%
- Major Kitchen Remodel 63%
In contrast, the projects with the worst returns came in at ratios between 47-56% and those were: midrange bathroom addition, upscale bathroom addition, backup generator, upscale master suite, upscale bathroom remodel and master suite addition.
You can read all about 2016 Remodeling Cost vs Value Report at www.remodeling.hw.net/cost-vs-value/2016/. Please note the figures from this column are from the New England geographical area.
Trends Do Matter
In December 2015, about 2,000 National Association of Realtors (NAR) examined the return on investment they have seen in home sales based on remodel projects as well as data collected by the National Association of the Remodeling Industry (NARI). The report can be found at http://www.qualifiedremodeler.com/news-analysis/news/20359070/nar-remodeling-impact-report-2015 NAR indicated the project’s dollar return was up by 6.7% from 2015 and raised their home estimates due to the value of remodeling is often tied to the great local real estate market. As you may know, since October, prices for existing homes were up 5.9% thus making remodeling factors a major part of the price of a home. Think of it this way…it’s no longer “Oh it’s a 2500 sq. ft. home it should cost this…” but on the contrary “It’s a 2500 sq. ft. home with new windows, entry door and siding.” According to the National Association of Home Builders, 60% of all homeowners launch a remodeling project within 6 months of moving into their home, thus trends do matter. Since curb appeal plays a significant role with real estate sales, the NAR lists the highest recovered costs for Exterior Projects were:
- Roofing 105%
- Vinyl Windows 80%
- Vinyl Siding 83%
- Fiber Cement Siding (i.e. James Hardie) 79%
- Fiberglass Door 60%
- Steel Door 75%
As you may see some of the ROI% differ between reports due to the nature of the researched performed. Look at both of them for an accurate perception of home improvement costs and values.
So when you’re ready for your next remodeling project, use these reports to help you:
- Decide whether you want to make an investment in a certain home improvement over another.
- As a great tool if you’re looking to sell your home within 5-7 years.
- Validate realistic base prices (not reality TV or DIY programs) for budget expectations.
- Learn what you are going to recoup as well as what to expect for costs.
I hope this week’s column will help you make smart ROI decisions for your home. If you want to learn about the costs on windows, siding, roofing, sliding glass doors, entry doors and/or walk-in tubs or have other questions, please contact us at 978-304-0495 or email me at email@example.com