Home Renovations: How to invest wisely for high return

HouseBuyers who anticipate investing in home renovations in the near future should consider these two important questions first:

  • What renovations will provide the highest return on investment?
  • Which full-scale renovations are truly needed to make the home more functional vs. which can be done simply to make the home more sellable?

According to Money Magazine’s December 2014 “Ask the Expert” article, homeowners who plan to move in the next ten years should wisely limit their spending to what they can expect to recoup at the sale. Limiting home renovations to projects that add valuable square footage such as extra bedrooms and living space that have a high return on investment is a smart move.

Even though buyers generally check out the condition of the home’s kitchen and baths first, fully remodeling a functional kitchen simply because of a conflict in personal taste can be a costly mistake. A kitchen that is fully functional and in good condition may not need a complete remodel in order to sell the home. Instead, consider more minor home renovations such as upgrading surfaces like countertops and floors, updating appliances, and repainting the space to spruce it up without investing funds that may not offer a substantial return at sale. A kitchen that is thirty or forty years old, however, is due for a major renovation.

Master bathrooms that offer two sinks, custom showers, great lighting and updated hardware are generally seen as good investments. If the home has one full bath and one half bath, upgrading the half bath is a good investment as well, especially for a three bedroom home. Again, as with kitchens, sometimes the more minor home renovations offer the best return on investment. In the bathroom consider new paint, new hardware, and a new toilet to increase the home’s appeal without investing too much money.

Once the owner decides which home renovations are most critical, they should plan to limit their spending so as not to over improve their home and price it out of the neighborhood. Money Magazine consulted with John Bredemeyer, an Omaha appraiser and spokesperson for the Appraisal Institute, who recommends spending no more than the following:

  • 15% of the home’s total value on a kitchen remodel
  • 10% of the home’s total value on a master bathroom remodel or addition
  • 5% of the home’s total value on a powder room remodel or addition

The most important aspect of real estate to consider when choosing which home renovations are most likely to offer a high return is that buyers ultimately want to purchase a move in ready home that needs little work. With that in mind, carefully select home renovations that are most likely to provide a high return on investment.

This blog post is the opinion of Belmont Savings Bank and is not to be taken as financial or investment advice. For personal financial advice, please consult a financial advisor.