Home Improvement Rates of Return 101

Renovating for returns

A house is a valuable asset. In terms of investments, real estate is among the safest investments to make. In a survey conducted by Bankrate.com, this belief is reflected in more than 1 in every 4 American. It is only natural to want to add more value to an investment asset. And in the case of a house, one of the ways to do this is to undertake home improvement projects on the property.

With a mindset of “renovating for returns”, the general idea of setting out to do home improvement projects for a return is generally solid. But this is only true to a certain extent. Not all home improvement projects recoup their costs, and very few still, will recoup 100 percent of the costs. At most, homeowners who spent a small fortune on upgrades and restoration projects will only manage to get a small portion of their costs back.

The important thing to know is the rate of return for a certain home improvement project.

Defining the rate of return

What exactly is a home improvement rate of return?

Simply put, the rate of return is the result of the cost versus value of the home improvement project. It is the return of investment that the project will give back. This gives homeowners a clear picture of just how much they will get back from a certain project that they intend to undertake.

To get the rate of return of a home improvement project, many factors can come into play. From construction costs that include labor, material, this is calculated against industry-standard overhead and profit. But as there are regional pricing variations, what a rate of return for a home improvement project in one state is not necessarily equal the value of the same project in another state. Another factor that comes into play is the personal style and preferences of the homeowner. Traditionally, the more personalized the project, for example a Safari themed living room, the less significant its rate of return.

Maximizing rate of returns

Industry experts advise the personal tastes and preferences should not come into too large a role when it comes to renovations meant to add value to the property. According to a 2016 report by Remodeling magazine, the following are the best home improvement projects to undertake as they have the highest rate of return:

  • Entry door replacement (fiberglass)

Replacing the front door can have a significant impact on the resale value of a house. The best option is a fiberglass door with simulated wood grain, stained color sides, dual-pane, and a decorative half-glass panel. This is expected to have a rate of return of 82.3 percent of its cost.

  • Family room addition

A family room addition is expected to have a rate of return at 67.9 percent of its cost. Keep the addition in style with the existing house and add two operable skylights, atrium-style exterior doors, and recessed ceiling lights.

  • Garage door replacement

Installing a new 4 section garage door on a new galvanized steel track can have a rate of return by as much as 91.5 percent of it cost.

  • Minor kitchen remodel

By updating a functional but outdated 200 square foot kitchen with new cabinetry and countertops, and replacing oven cooktops with new models, homeowners can expect a rate of return by at most 83.1 percent. This including repainting the trim, adding wall coverings, and replacing the flooring.

Knowing just how much the rate of return for a home improvement project is an important piece of information to have. Rather than spend the budget on a vanity project, homeowners can instead use it to further add value to their homes. And that is the best investment decision anyone can make.

 

Sources

http://www.cnbc.com/2015/07/22/survey-says-real-estate-is-the-best-investment.html

http://www.remodeling.hw.net/cost-vs-value/2015/

http://www.thisismoney.co.uk/money/mortgageshome/article-2834756/Which-home-improvements-add-house-prices-investment.html

http://www.styleathome.com/homes/renovating/return-on-renovation-costs-how-much-will-you-get-back/a/882

http://homeimprovement.lovetoknow.com/Home_Improvement_Return_on_Investment

http://www.houselogic.com/home-advice/home-improvement/home-remodeling-projects-with-long-term-ROI/

http://www.todayshomeowner.com/rate-of-return-for-home-improvement-projects/

http://www.buyandsellyourchicagohome.com/newsandtips/2016/1/25/10-important-home-renovations-with-the-highest-rate-of-return