Table of Contents
- How to Get the Best Return on Investment for Home Improvements in 2020
- Home Improvement is Necessary
- Consider Cost Vs. Value When Remodeling
- What Renovations and Improvements Add Value to A Home
- Top Renovation Projects for Best ROI
- Inexpensive Updates that Add Value to the Home
- The Best Home Improvements are…
- Avoid Over Improvement on Your Home
- Are Some Home Improvements Tax Deductible?
- Exceptions to the Rules Regarding Tax Deductions
- Considerations When Renovating
- For Additional Information Regarding Home Improvement and Real Estate Trends
How to Get the Best Return on Investment for Home Improvements in 2020
How can you make sure your home improvements give you the best return on investment? Home improvement ROI is an important subject for homeowners to research, whether you’re thinking of selling in the near future, or staying for a while. Making wise improvements will add lasting value to your home, and if done right, will also net a good ROI.
While home values are recovering in our Frederick Maryland market, many owners who purchased at the top of the market have been resigned to stay in their homes because they owe more than the house is presently worth. They realize that since they will be staying in their home for a while, they might as well make improvements that they will enjoy.
Others are improving their homes to make them more market ready when they decide to sell. Either way, it’s always a good idea to maintain and repair your home at all times during the years that you own it.
Home Improvement is Necessary
Making steady improvements during your years of ownership keep you from having a long list of honey-do’s when it is time to sell. Additionally, your home is more enjoyable along the way.
When upgrading a home, it is always wise to keep with the standard of the neighborhood, or of comparable homes in your market, if you are concerned about return on investment.
Whatever the reason, making careful and thoughtful decisions about home improvement ROI is very important if you want to get the highest return. Generally, home improvements do not bring the full return of the cost at the sale of the home, but some improvements bring a better return than others. Some improvements are simply necessary to make the home more attractive to today’s buyers, no matter what the ROI.
Some improvements are not worth doing…
the cost and effort far exceed the return
In the 26 years we’ve been in real estate, we’ve seen a regular occurrence with homeowners…they often overestimate the value of the upgrades, renovations and improvements they’ve done on their homes. When clients call us to come over and give them advice about what improvements to make, we find ourselves saying “don’t” more often than we say “do”.
Consider Cost Vs. Value When Remodeling
One of my most trusted resources is Remodeling Website . I like to consult the site to find current trends and data to publish here on my blog as helpful information to homeowners. Remodeling has published the results of the 2019 Cost vs. Value study. This compares the average cost for 21 popular remodeling projects with the value those projects retain at resale in 102 U.S. markets.
These studies are important because what gets a good return on investment in Maryland doesn’t work well at all in Phoenix…or lots of other places. (be sure to check out the video below)
The study measured the cost-value ratio for 21 projects that were done most often in the Washington D.C. region. They ranged from a return of 57.8% to 105.3%. Many times people are surprised to see that the return on their investment is somewhere in the 60% to 70% range.
Only two renovation projects returned more than 90% of the money spent: 1. A garage door replacement (97%), and 2. the addition of manufactured stone veneer (105.3%). Here’s the breakdown in order from least to best return on investment:
- Entry door replacement (steel) 56.1%
- Master Suite Addition (upscale) 57.8%
- Bathroom Addition (midrange) 60.1%
- Bathroom Addition (upscale) 60.9%
- Major kitchen remodel 61.9%
- Bathroom remodel (upscale) 62.5%
- Major kitchen remodel (midrange) 64.7%
- Roofing replacement (metal) 65.4%
- Master Suite Addition (midrange) 67.6%
- Bathroom Remodel (universal design) 69.7%
- Bathroom Remodel (midrange) 69.8%
- Deck addition (composite) 72.1%
- Roofing replacement (asphalt shingles) 72.7%
- Window replacement (vinyl) 76.5%
- Siding replacement 78.5%
- Grand entrance (fiberglass) 80.4%
- Deck addition (wood) 82.9%
- Minor kitchen remodel (midrange) 83.4%
- Entry door replacement (steel) 83.8%
- Garage Door replacement 97%
- Manufactured Stone Veneer 105.3%
See the Remodeling Website for the full list of projects and the ROI of each. You’ll also find how-to articles, products and lots of other resources.
What Renovations and Improvements Add Value to A Home
As you can easily see by this report not all home improvements give equal return on investment. In most, but not all cases higher-end improvements got a lower return on investment than improvements in the mid-range cost. Generally speaking, minor renovations usually net a higher ROI than major renovations. Adding full additions also gives a lower return.
While not all improvements bring a return that homeowners would like, some improvements or repairs are absolutely necessary to sell the house…in the given market. For example, if your roof is past it’s recommended lifespan and the comparable homes on the market have newer roofs, you might have to face that fact that your old roof is a detriment.
Regardless of the return, some projects help sell a home more than others. Some home improvements are absolutely necessary to get the highest sale price for a home. How does a homeowner navigate the home improvement waters?
We like to say that “kitchens and baths sell homes”. They are generally the more expensive rooms in a house to update. Even when updating those rooms, a homeowner must always consider their home in comparison to similar homes in their area and price range… homes that would be the “competition” when you are marketing your home for sale. This includes homes in your neighborhood, price range, year built, home style and square footage.
Top Renovation Projects for Best ROI
Kitchen Renovation is Number One for Increasing Home Value
The most important room to turn your renovating dollars towards is the kitchen. Unless your kitchen is very outdated or disfunctional, a total renovation is probably unnecessary. You can start with the least expensive projects and see what a huge difference they make.
- Update the lighting. Out-of date fixtures can really make a kitchen look dated, but the cost of new lighting is relatively low.
- If you need to replace old appliances, make sure they are energy efficient, as today’s home buyers feel that energy efficiency is important.
- Consider appliances that look good in your home style. Take a look at your competition. Stainless steel appliances are still popular, but there are a lot of choices these days. Above all, don’t skimp on the refrigerator…most new homes are outfitted for a 36-inch model.
- Countertops are one of the most critical decisions in a kitchen. The sheer size dominates the room. Although granite is very popular, there are many other solid surface products that look great: silestone, soapstone, quartz, and even concrete. Again, look at your competition.
- Flooring in the kitchen must be durable; it’s the hardest working room in the house. Engineered hardwoods are beautiful and durable, but they are among the most expensive choices. Unless you have a high-end home, it’s usually not necessary. There are plenty of good options, like ceramic, stone, or porcelain tile. Today’s laminates look amazing and are easy to install.
- Paint is the easiest solution to many ills with the best return on investment. With today’s open floor plans, make sure your kitchen colors flow with the rest of your home.
- If you are doing a more intense renovation, be sure to do your research on the best layout of your kitchen. People spend a lot of time in the kitchen and most expect an eat-in area.
For additional Reading: Kitchen Trends for 2019
Does Remodeling the Bathroom Increase Home Value?
Bathroom updates are number two, and can do a lot for your home value. Today’s homebuyers have expectations, so be sure to research your competition.
There are a lot of updates that have a high return on investment. Like the kitchen, they don’t have to be costly. Start with the small improvements and work your way through until you are satisfied with the updates
- Start with updating the lighting. Task lighting and overhead lighting are both important. Make sure your mirror(s) are in good shape and well-lighted.
- Simple changes to the cabinet hardware, towel bar and switch plates are easy to do but add to the overall appeal. If you need to change out the cabinets, there are many stylish and affordable choices at your local home improvement box store.
- Fresh paint in a soothing, zen-like neutral shade is the most cost effective way to add value to a bathroom.
- Today’s homeowners are demanding more style choices, more elegance. Take a look at your bathrooms and look for ways to add stylish features that blend with the rest of our home.
- Lastly, do the small repairs that need to be done. Replace cracked tiles, leaking faucets, and slow-running toilets. Tune up the grout. Dirty grout is not only a turn-off, it suggests to buyers a lack of maintenance.
For Additional Reading: Bathroom Trends for 2019
Inexpensive Updates that Add Value to the Home
- Just like the advice for the kitchen and bath, start with simple updates. Change out hardware and lighting fixtures. It’s time to take care of damaged, worn and dated, or mismatched items: doorknobs, cabinet pulls, light switches and plug-in plates. These are an easy fix and will give your home a fresh, updated look.
- Updating, refinishing, and deep-cleaning your flooring will add value to your home. Dated carpet must go. Hardwoods should be in good condition, and your color choices should fit in with a modern overall decor.
- Paint. It’s quick, easy and inexpensive. In choosing a paint color, consider how the color makes a room “feel”. If your room is small, remember that lighter, cooler colors make the walls recede, adding a feeling of more space. Avoid bold, polarizing colors, and stick to neutrals to appeal to the broadest audience.
The Best Home Improvements are…
Free to relatively cheap.
A thorough cleaning is your best home improvement possible. Cleaning windows will brighten up any space…you may not need to do the updating you thought you would.
Adding the brightest watt bulbs your fixtures can take will brighten up the spaces as well.
Cleaning up the yard, the garage, and the outside of the home will make a huge difference to your space. Clean floors, appliances, fixtures, and uncluttered spaces will transform your home in an amazing way when you consider the cost is only elbow grease.
Avoid Over Improvement on Your Home
If you haven’t already noticed, we’re not advocates of spending a lot of money on improvements, accept in the areas that will make your home more salable. We’ve seen too many homeowners over-improve and then be disappointed on the return they get.
After 26 years of working with home sellers in the central Maryland area, it is always difficult to break the hard news to homeowners who have spent too much money on the wrong renovations and home improvements. They often expect to get their money back on those expenditures when they sell their home. There are definitely some home improvements sellers should avoid.
Are Some Home Improvements Tax Deductible?
With some exceptions, home improvements on your personal residence are not tax deductible. They can however, be tax benefits when you sell your home. The costs of some home improvements can reduce capital gains you may face when you’ve sold your home, if you’re home value is over the threshold.
Here’s an example: Fred and Wilma bought a home for $500,000 and sold it 20 years later for $900,000. During the time they owned their home, they made $100,000 worth of improvements, including a kitchen and bath renovation, a new deck and fence. These added $100,000 to their “basis”, making it $600,000. They subtract this from their sale price, reducing their capital gains tax.
If you are planning a renovation, do yourself a favor and consult your local real estate professional before you take the plunge. Find out what today’s buyers are looking for, as well as what home improvements are trending in your market. You’ll save yourself some money and you’ll be confident that you are investing wisely. Getting the highest home improvement ROI is a wise move.
We are not accountants or tax specialists,
we are REALTORS who have some experience.
Consult a tax adviser or accountant for information.
Exceptions to the Rules Regarding Tax Deductions
Exceptions to the Tax Deduction Rules:
- Some energy efficient upgrades are tax deductible. You can use a one-time credit on your Federal taxes of 30% of the cost of solar, geothermal, wind or fuel cell tech added to your home. These tax breaks are always subject to change, so be sure to check the IRS website.
- If you have a home office you can deduct any improvements you do to the office. You can also deduct a percentage of any overall improvement according to the square footage of your home office…for instance a new HVAC system. It benefits your home office space, which maybe is 10% of your home’s square footage, so you can deduct 10% of the cost.
- You can deduct improvements on your home for medical reasons. Making your home handicap accessible with ramps, lowered cabinets, or widened doorways, for instance.
- Federal Historic home renovations are unfortunately, not available for primary residences. Many states, however, offer tax breaks for historic preservation. The state of Maryland offers a write-off of 20% of the cost of certain renovations. “Homeowners have the opportunity to earn a state income tax credit equal to 20 percent of qualified rehabilitation expenditures. The credit is capped at $50,000 in a 24-month period and must have a minimum of $5,000 of eligible expenses to qualify.”
- The Frederick County Historic District Tax Credit provides a five-year decreasing credit on improvements made to existing structures within the historic district. It is for residential and commercial properties downtown.
- The Downtown Property Rehabilitation Tax Credit is a City of Frederick program that awards tax credits for the 40 blocks designated as Downtown Frederick.
For Additional Reading: Historic Home Renovations that Will Ruin Your Home’s Value
Considerations When Renovating
While the cost vs. value factor is important in planning renovation projects, it shouldn’t be the only consideration.
- For homeowners who are renovating to be able to age in place, or who need to care for an elderly family member, other issues may be more important than return on investment.
- If you are remodeling to add a home office so you don’t have to commute, the return for that investment is more than the actual home value, it is the value of time added to your day.
- For some projects, the satisfaction and quality of life while living in a house that you love is the main priority.
- Homeowners should always consider the trends in their market, in their neighborhood and in their comparative price range. Renovating far above the standard of homes in your area may produce features in your that you absolutely love, but you should understand that you won’t likely get the return on investment that would make the renovations the best financial decision. In that case, make sure that you are doing renovations only for your own enjoyment.
For Additional Information Regarding Home Improvement and Real Estate Trends
- Minor Home Improvement Projects Providing Major Returns. Great advice from Joe Boylan, Broker-Associate at Springs Homes Real Estate in Colorado Springs, Colorado. At the top of his list is curb appeal. Landscaping is well worth the effort, given that most buyers make up their minds about a house in the first 30 seconds.
- Should you buy a fixer-upper to flip in 2020? Given all we’ve seen in the cost vs. value analysis, it’s a LOT of work. Flipping is something that even very experienced professionals can get wrong. According to real estate pro Bill Gassett, Metrowest Massachusetts REALTOR and blogger, it’s not as popular as it used to be. Be sure to check out his informative article: Buying a Fixer-Upper Home: What You Need to Know.
- The decisions surrounding where you will spend your renovating dollars largely depend on your local real estate market trends. As stated above, knowing the expectations of buyers in your market is critical, as well as knowing the condition of your competition. It’s a supply and demand world when it comes to real estate. Petra Norris, Lakeland Florida real estate agent and blogger has put together some excellent explanations of Home Selling Trends for 2020.
- Is 2020 the right time to buy and sell a home? As we look to the local real estate trends, and consider the important questions involved, you may decide it is, or you may wait. As Eric Jeanette, of Dream Home Financing, explains in his thought-provoking article, When is the Right Time to Buy a Home, Whether you are someone who wants to buy as soon as possible or wait it out, what’s important is that you weigh all possible pros and cons before jumping into this huge decision.
- Lastly, I’ve got fantastic advice from fellow eXp Realty agent John Cunningham, Phoenix Realtor: What home improvements should I make before I sell?
Need A Real Estate Agent in Your City? We Can Refer a Great Agent!
Contact us to help you negotiate your Frederick Home sale.
Chris & Karen Highland
eXp Realty – 301-301-5119
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