2018 Residential Remodeling Projects With Highest Return On Investment

All homeowners invest in their property; however, the motivation behind these investments will vary from owner to owner. Home renovation projects take place for a variety of reasons. Some are a mix of personal preference and increased home value, while others focus solely on the latter; often in an effort to sell or flip a home. Because home renovation projects occur for a variety of reasons, a project’s ROI cannot always be strictly measured in monetary terms. That being said, in a world full of data, homeowners are looking for a guide to help determine which project will return the best ROI in terms of hard dollars.

In the infographic above, we have created a visual representation of various remodeling projects based on the 2018 Cost vs. Value report. The project cost is represented by the length of the gray bars; whereas, the recoup value (in percentage of cost) is displayed in colors that each represent a specific range. The visualization can help homeowners understand how much a project may cost and how much they can expect to recoup from it, both in real dollars and percentage of output.

The “Curb Appeal” Connection

The data from 2018 will reassure any homeowner that may be considering a curb appeal project. These types of projects freshen and update a home’s look, helping to increase its value and potentially achieve a faster sale. The top three projects, in terms of Cost Recouped, are: Garage Door Replacement, Manufactured Stone Veneer, and Entry Door Replacement. Each of these projects boasts a rate of over 90% in terms of Cost Recoup. In addition, it is important to note that these three projects are the least costly to undertake. Curb appeal projects are an all-around payoff: The neighborhood and homeowner benefit from an improved aesthetic and the home itself increases in value, all while returning 90% or more of the initial investment.

The Over-Improvement Pitfall

According to the National Association of Realtors (NAR), 88% of homebuyers financed their purchase in 2017. In traditional financing agreements, independent home appraisals that equal or exceed the contract price of the home are required for the full requested amount of lending to take place. For existing homes, the primary appraisal method is the “Sale Comparison Approach” which uses the home’s neighborhood and recent sales data, also called “comps”, combined with the home’s condition and amenities to arrive at it’s value.

While personal preferences often come into play during home renovation decisions, it is imperative that owners take into consideration both the neighborhood in which the home is located as well as the Cost Recoup of the project in order to make the best decision for their investment. The data indicates that out of the top five remodeling projects in terms of Cost Recoup, only one is an “upscale” project. Undertaking an upscale project in a neighborhood of midrange projects may not result in the Cost Recoup expected. While an upgraded home can appraise and sell for more than a non-upgraded home in the same neighborhood, it may not do so for as much as was expected. It is essential that homeowners consider the role that comps play in the appraisal process when making remodel decisions.

Most Appealing To Buyers

The NAR 2017 Remodeling Impact Report lists kitchen and bathroom renovations as the leading interior and new roofing and new vinyl windows as the leading exterior renovations in terms of appeal to buyers. The 2018 data from REMODELING indicates that projects at the high end of Project Cost, all averaging over $60,000, include multiple kitchen and bath projects (master suite projects are also included in this group). These projects are not only the most costly to undertake, they also rank among the lowest Recoup Cost percentages, all falling below 60%. Homeowners on a tighter budget that wish to pursue a kitchen or bath projects might consider a midrange bathroom redesign or remodel. These two projects can be completed, on average, for $16,393 and $19,134 respectively and both have Cost Recoups above 70% (70.6% and 70.1%). Or a midrange minor kitchen remodel would also be a good choice. It costs $21,198 on average with a generous Cost Recoup of 81.1%.

Window replacement projects have a Cost Recoup of 74.3% and 69.5% for vinyl and wood replacement respectively and they both have an average cost of under $20,000. These projects are mid-range in terms of Cost Recoup and Project Cost with new roofing at 68.4% ($20,939) and new vinyl windows at 74.3% ($15,955).

Bringing It All Together

Ultimately, whether a homeowner is planning to stay or sell will have an influence on what renovation projects are pursued. Fortunately, there is an option for everyone and every budget. Using the data presented here will serve as a valuable asset to help understand the project’s likely average cost as well as how much it may recoup. Additionally, having an understanding of the particular market as well as what appeals most to buyers will help for those looking to make the most on a sale of their investment.

Comments