Most homeowners have plans for future remodeling projects, but not all will see a significant increase in home value.
Data from the Contractor Growth Network reveals that bathroom renovations are the most popular home improvement projects, followed by kitchen and basement renovations.
While some homeowners may recoup their investment when selling their homes, most renovations do not result in a substantial return.
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A separate Cost vs. Value report from Zonda Media indicates that homeowners typically receive only a 60% return on their renovation investments.
The projects that generate the highest resale value are those that improve a home’s curb appeal, rather than new kitchens and bathrooms.
“You have to disregard what you see on HGTV,” said Todd Tomalak, Zonda’s principal of building products research, in a recent CNBC interview.
Only a few renovations or additions yield a 100% return on investment, such as converting HVAC systems to electric, replacing garage doors, installing stone veneers, or upgrading to steel front doors.
The Zonda survey found that minor kitchen remodeling, such as painting and updating the backsplash, offers high returns, but major kitchen and bathroom renovations do not.
In today’s high-priced housing market with limited inventory, more homeowners are choosing to renovate their current homes instead of buying new ones, according to Tomalak.
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Despite rising construction and financing costs, this decade could be the “golden age of remodeling,” according to Tomalak.
However, cost remains a critical factor for homeowners.
Furthermore, financing renovations will become more expensive as long as the Federal Reserve maintains high interest rates to curb inflation.
Consider the numbers before starting a home project
A recent report by Real Estate Witch reveals that 95% of homeowners plan to undertake major home improvement projects in the next five years, but only 50% can currently afford it.
Additionally, homeowners tend to spend more than they initially expect, with an average expenditure of $3,890 on renovations and remodeling in the past year alone.
To budget wisely, it is advisable to consult a local realtor regarding renovations that can increase home value and which ones to skip, suggested Sophia Bera Daigle, CEO and founder of Gen Y Planning, a financial planning firm for millennials based in Austin, Texas.
Always obtain competitive bids for any project and add a 10% buffer to the estimate to account for unexpected expenses, as they are likely to arise.
If financing is necessary, consider obtaining a home equity loan or line of credit, but be sure to factor in the interest rate and potential monthly payment, advised Daigle.
It may be wise to postpone a major renovation to save money, pay down debt, and wait for interest rates to potentially decrease, added Daigle, who is a certified financial planner and a member of CNBC’s Advisor Council.
Lastly, consider the duration of your stay in your current home and how a renovation will impact your quality of life, urges Tomalak. “If people are staying in their homes longer, the focus of remodeling shifts from an investment to improving their daily lives.”
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