Things you should know about ROI before you remodel

One of the biggest mistakes that homeowners make when remodeling their home is forgetting to think about their return on investment (or ROI). It’s understandable because it’s easy to get caught up in the excitement of making home improvements that you’re excited about without thinking of how much of your money you’ll be getting back. Here are a few things to think about regarding ROI before you remodel.

Just how important is it?

One of the reasons many homeowners don’t think much about ROI going into a remodel is because they mistakenly assume that any home improvement is a good investment into their home’s value and that they’ll recoup a significant portion of the cost when they remodel. Unfortunately, this isn’t true. While some home improvement projects can recoup as much as 80 or even 90% of the cost at resale, others might only recoup 50% or less.

There is one scenario where return on investment might not be an important factor to consider and that’s if you’re absolutely certain you won’t be selling any time soon. If your home is the one you plan on retiring in and will spend decades in, then you can feel free to make whatever home improvements are most important for your happiness and comfortability without thought about how much you can get back.

What if you are planning to sell?

If you are expecting to sell your home eventually, even if it’s not in the immediate future, then ROI becomes a much more important factor. How important is determined by how soon you will be selling. Of course, if you are only remodeling to make it easier to sell your home and to maximize profit then ROI is all-important. If you know you’ll be selling down the line but want to enjoy the home improvements yourself in the meantime then it comes down to finding a balance between projects that will make you happy but also increase your home’s value considerably so there’s a good ROI.

A word of warning

Even if you’re careful to select projects that tend to get a good ROI, there’s a limit to how much money you should put into remodeling because there’s a limit to how much you can increase your home’s value. Any realtor will tell you that for any neighborhood, there’s a maximum that people will be willing to pay regardless of what the home is really worth. Before undertaking a remodeling project, you need to take into account the average cost of a home in the neighborhood. If after your remodeling, your home is the most valuable in the neighborhood, but barely, you may still be able to sell it. But if you’ve done upscale remodels in every room in the house, chances are you won’t even come close to recouping the costs and the lucky buyer is going to be getting a steal of a deal on your home.

Prioritize small projects that bring your home up to a standard

You can find lots of resources that tell you the safest remodeling projects when it comes to ROI, but as a general rule, remember that the best projects are smaller ones that cost less in the first place. Also, the best projects aren’t necessarily ones that are over the top. Focus on projects that add functionality and that fix things that may make it outdated. For example, if you have rather old appliances, swap them out for new stainless steel ones. If you have and old baseboard radiator system, install snap-on baseboard heater covers to make your home look more modern.

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