Homeowners often undertake remodeling projects with an ulterior motive. Sure, they want to enhance their living space; but frequently they hope the renovation or addition will boost their home’s value as well. After all, aren’t three bathrooms better than two? Who wouldn’t want a state-of-the-art kitchen, a finished basement or a swimming pool?
Misguided thinking. When it comes to adding value, not all home improvements are created equal. In fact, “some home projects can actually decrease your home value,” says Mischa Fisher, chief economist at Angi, the contractor search service and house renovation site.
In general, you can expect home improvements to provide a 70 percent return on investment, according to the home remodeling loans platform RenoFi. That figure can vary significantly however, depending on the specific type of project you take on.
Do home improvements always add value to the house?
The short answer is no, home improvements do not always add value. Even if they do, that’s not quite the same as you actually making a profit on the project, or even recouping your costs. There’s a big difference between adding value to your home and earning a return on your investment, says Fisher.
You can look at a project’s returns in two ways: First, how the project raises the total resale or market value of your home. This is a nice way to see how your home’s worth has changed, compared to the money you spent on the project. It can be useful to know if you’re thinking of putting your house up for sale, are contemplating borrowing against it or just want a sense of its overall value — and your equity stake in it — when totaling up your assets.
Alternatively, you can look at the project’s return on investment, or ROI. “This is a measure of how much the home’s value rises as a share of the project cost, typically expressed as a percentage of the total project cost,” Fisher explains. “For example, if a $4,000 garage door improvement adds $3,500 to the value of your home, you could say the project has an 88% ROI. This means you are able to recoup a large share of the project cost. This is different from the financial investment world, where an 88% ROI would mean you nearly doubled your initial investment.”
The point is, don’t confuse a project’s return on investment percentage with the amount of profit — or amount of increased home value. For example, Remodeling’s 2021 Cost vs Value Report says replacing a metal roof costs $46,031 and has an ROI of 56 percent. That means it bumps a house’s potential price tag up by $25,816 — it does not mean the entire value …….