How to get the best value out of your home renovation

How to make sure home renovations pay for themselves

At some point, every homeowner looks at an outdated kitchen or bathroom or den and wonders whether it’s time to renovate. On one hand, I completely get it: Looking at the stained shag carpet in the rec room one more day may be too much to contemplate. But before you pick up a sledgehammer and go all HGTV, you need to ask a couple of questions that will affect what is likely your biggest investment.

One: Will you be able to recoup what you spend—or, better yet, make money—on the upgrades when you eventually sell the house?

Two: Are you updating because you’re preparing to sell the house soon or are you, like one in four Americans who are updating, just trying to improve your day-to-day living?

Which renovations increase your home value most?

The type of and the reason for your reno matters in terms of the return you get when you eventually sell. I’ll get to the reason in a minute, but first: Which types of home reno projects hold their value best? Here are my top 10 renovation projects, with the average job cost and nationwide return-on-investment stats based on a recent report from the National Association of Realtors (except where noted):

1) New roofing, $7,500 estimated cost: 107% return on investment

2) New hardwood floors, $4,700: 106%

3) Refinished hardwood floors, $2,600: 100%

4) New garage door, $2,100: 98%

5) HVAC replacement, $8,200, 85%

6) Insulation, $2,400: 83%

7) New steel front door, $1,800: 75% (via Remodeling Magazine)

8) New vinyl windows, $22,500: 71%

9) Bathroom renovation, $35,000: 57%

10) Kitchen upgrade, $38,300: 52%

As you can see, the projects that make for the most breathtaking before-and-after images are not necessarily the ones that pay off financially. In fact, the most fawned-over reveals—those stunning kitchens and spalike bathrooms—tend to recoup the least. If you’re looking for value, the practical projects (hello, insulation!) win every time.

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Just as important is why you’re renovating. Generally, there are two possible reno motivations—and each of them should influence the types of projects you choose to tackle.

Scenario 1: You’re selling the house

Whether you’re relocating for work or just headed down the street to a new place, selling your present house for as much money as you can is a key part of any move. In general, real estate agents caution against doing a big renovation solely to boost the sale price. That’s because location and market conditions greatly affect your return. (Remember, the numbers above are just national averages.) Consult a local agent familiar with your market before deciding what, if any, fixes to invest in.

Of course, some repairs are not optional. You might need to fix water damage from a leaky roof or a flood-prone basement, as these issues and others—such as the presence of lead paint or asbestos—can raise red flags during an inspection. Again, your realtor can help you assess whether it makes financial sense to invest in repairs or just offer to include their cost in the deal at the closing.

As for optional fixes, Heather Kandawire, a New Jersey–based real estate agent with Keller Williams, advises her sellers that they should spend 1% to 2% of the list price on smaller, cosmetic improvements, such as having carpets cleaned or removed or refinishing wood floors that show wear and tear.

Rather than return on investment, this is about reaching your goal price by making the best possible impression with easily noticed upgrades. “If tiles around the shower have new grout and caulking, and there is no mildew anywhere, buyers will be happy,” said Gerard C. Splendore of Warburg Realty in New York City.

Scenario 2: You’re staying

If you plan to remain in your home for at least five years, your upgrades should improve your family’s experience in your home. This should be obvious, but many people focus on resale value and end up with a remodeled house they don’t actually like living in. Think in terms of what would enhance your family’s daily life—like adding a bathroom because your teenager monopolizes the only one you have. (That additional bathroom will also be a selling point down the road.)

That said, be aware that any large, personalized projects can work against you if you end up having to sell the house unexpectedly. “Big-ticket projects with personal and customized choices, like wine cellars or hobby rooms, deliver the lowest returns,” Kandawire said. “You can do those types of renovations for your personal enjoyment, but don’t expect a dollar-for-dollar return when it’s time to sell.” The bottom line: The more personal or quirky the improvement you make, the less money you will make back

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