Your home is a huge financial investment, and any money you put toward it should not only increase your enjoyment of the home, but also add value so you can reap the benefits when you sell.
Whether you’re planning on selling in the next few months or maybe even a few years down the road, remodeling with the return on investment (ROI) in mind is always a smart and strategic move.
What is Return on Investment (ROI)?
Return on investment is a performance measure used to evaluate the efficiency or profitability of an investment. Essentially what is the value of the return you receive on your investment compared to its initial cost. This measurement can help homeowners understand the value of a house and how improvements will increase or decrease that value- or leave it unchanged.
True Return on Investment for Homeowners
As previously stated, your home is most likely among your largest assets and it makes sense that you’d want to know how it’s performed. To calculate the ROI on your home, consider beginning with a more conservative approach.
- Add up your acquisition costs (down payment, attorney fees, closing costs, etc.)
- Add up your total costs of ownership. Calculate the total payments made to principal and interest, taxes, and insurance, repairs and maintenance, plus other expenses such as HOA fees.
- Add up your selling costs. From the real estate agents (typically acquiring about 5% of the overall sale price) to the closing costs and even state and local tax amounts, the selling costs could be quite significant.
- Find your loan payoff amount. You should already know what this is if you’ve already sold your home. However, if you are just thinking about selling your home, you can use an online amortization schedule or call your bank.
- It’s time to calculate:
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Sale Price – Buying, Owning, Selling Costs – Loan Payoff Amount = Total Profit/ Loss
Factors that May Impact Your Return
Some homeowners have the benefit of being able to choose when to sell. Unfortunately, a lot of homeowners do not have such flexibility. The market conditions tend to be one of the biggest drivers of your ROI, but it’s also something that can’t be controlled. Different kinds of home improvements have higher or lower ROIs, depending on the housing market trends or the house’s overall longevity.
It’s important to note that a positive ROI can be left to interpretation. If your home’s ROI is not truly positive, that doesn’t mean it wasn’t a good investment. Factors such as the property’s neighborhood, the value of homes in your immediate neighborhood, how soon you sell after making improvements, the quality of your renovation projects, condition, appreciation, and the amount of time you owned the home, all play key roles in determining the ultimate ROI.
Smart Low-Cost Home Improvements
You don’t have to expand your budget to make your home more appealing to buyers. These lower-cost projects still add aesthetic value to your home.
- New Interior Paint
- As a general rule, it is best to stick to neutrals- gray or beige walls with a clean, white trim perform well. (Search for painters near you)
- Curb Appeal
- Painting your front door can have a big impact. Consider going for charcoal, smoky-black, or even jet-black doors have been known to perform well with buyers.
- Smart Home Technology
- According to the Zillow Group Report 2020, 41% of Generation Z buyers and 47% of millennials rate smart home technology as highly important in their home search. (Home Improvement-Home-Security)
- Deep clean carpets, buff out or refinish hardwoods to minimize the appearance of scratches and stains.
- New Lighting
- This inexpensive, yet effective upgrade can highlight your home’s features and make small rooms appear even larger. (Search For New Light Fixtures)
- Update Your Mailbox and House Numbers
- A beautiful home with a dented, old mailbox or peeling house numbers makes all the other improvements look pointless. A small investment to paint your mailbox in a durable finish or even hang aluminum numbers on your house is well worth it.
Home Renovation Projects to Consider:
Kitchen and Bathroom Renovations
Kitchen and bathroom remodels are known to be definite investments. Kitchens have become the heart of entertainment in homes, and the master bathroom is how you begin and end every day. These rooms play such a key role in the home that real estate agents will name them as the “go to” rooms during home showings. New faucets, drawer knobs, and pulls in a matching style give a modern and cohesive look while being relatively inexpensive. Not only will you enjoy the upgraded look, but it will also make your property look even more attractive to prospective buyers. However, if your home only has one bathroom, your money may be better spent adding a second bathroom.
The Home Office
In recent years, the number of people who work from home has risen exponentially. In a Fall 2021 survey by HomeLight, 60% of top real estate agents cited a home office as a top priority for buyers in their market.
Creating a space or dedicating a current room to a home office will likely pay off in the long run, especially if you’re in a market with a decent amount of people who work from home.
While the dedicated workspace is still important to homebuyers, there is still a high demand for open spaces for family time and entertainment.
By this logic, knocking down a segregating wall can create a spacious layout on many homebuyer wishlists. Commonly, an open space between the kitchen and dining room, or even the kitchen and family room are popular. Consult with a contractor before swinging the hedgehammer to ensure a structurally supported space.
As you look around your home and consider opportunities for renovation, think about if the project will help the potential buyer view your property as a potential home. Are there rooms that need a little more TLC? Have you noticed dated features and amenities? It’s probably a safe bet that if you have noticed any of these things, some renovation plans may be mutually beneficial for you and your wallet.