Table of Contents
- Get the Best Return on Investment for Home Improvements in 2022
- Is Home Improvement Necessary?
- Consider Cost Vs. Value When Remodeling
- What Renovations and Improvements Add Value to A Home
- Top Renovation Projects for Best ROI in 2022
- Inexpensive Updates that Add Value to the Home
- The Best Home Improvements are…
- Adding a Home Office in 2022
- Avoid Over Improvements in Your Home
- Tax Deductible Home Improvements
- Exceptions to the Rules Regarding Tax Deductions
- Life Considerations When Renovating Your Home
Get the Best Return on Investment for Home Improvements in 2022
Owning a home is most likely the biggest investment most people make in their lifetime. Along the homeowner’s journey, home maintenance becomes necessary, and if you own the home long enough, home improvements. Every homeowner wants to get a good return on their investment for home improvements, but it’s not always clear which projects to focus on, when it comes to maintaining and improving a home’s value over the years.
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 return for you when you want to sell.
Whether you are improving a home to make it more market ready, or to make it more enjoyable while you live there, it’s always a good idea to maintain and repair your home at all times during the years that you own it.
Is Home Improvement Necessary?
Even though home values have been on a healthy increase for the last few years in Frederick and Central Maryland, selective improvements are often necessary to get top dollar for a home when you eventually want to sell. Home sellers must consider the other homes that are on the market in their price range and location. Home buyers will have an expectation because of what they are seeing in their home search. If your home doesn’t measure up to the competition, it won’t sell for top dollar.
Most homeowners find that making steady improvements during their years of ownership help to them avoid a long list of honey-do’s when it is time to sell. Additionally, a home is more enjoyable along the way.
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.
From a purely financial perspective, some home improvement projects are not worth it…the cost and effort far exceed the return.
In the 30 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 2021 Cost vs. Value study. This compares the average cost for 22 popular remodeling projects with the value those projects retain at resale in 100 U.S. markets.
These studies are important because home improvement returns are regionally different…what gets a good return on investment in Maryland doesn’t necessarily get a good return in other cities or areas of the country.
The study measured the cost-value ratio for 22 projects that were done most often in the Washington D.C. region. They ranged from a return of 45.6% to 95%. Many times people are surprised to see that the return on their investment is somewhere below the 60% range.
These studies have also shown that since Covid-19, project costs have risen significantly, causing a decline in the return on investment for all of these top projects.
Only two renovation projects returned more than 90% of the money spent: A garage door replacement returned 93% of the investment, and adding manufactured stone veneer returned 95% of the investment, on average.
Here’s the breakdown in order from least to best return on investment:
- Primary Suite Addition (upscale – 47.5%) (midrange – 52.1%)
- Bathroom Addition (upscale – 49.8%) (midrange – 49.9%)
- Bathroom remodel (upscale – 52.6%) (midrange – 56.5%)
- Bathroom remodel (universal design – 54.6%)
- Roofing replacement (metal – 55.8%)
- Major kitchen remodel (upscale – 52.4%) (midrange – 55%)
- Grand Entrance/Fiberglass (56.7%)
- Roofing Replacement/Asphalt Shingles (59.8%)
- Deck addition (composite – 59.9%) (wood – 65.6%)
- Window replacement (vinyl – 66.6%) (wood – 62.5%)
- Entry door replacement (steel – 62.9%)
- Siding replacement (fiber cement – 65.7%) (vinyl – 64.8%)
- Manufactured Stone Veneer 99.5%
- Minor Kitchen Remodel (midrange – 69.8%)
- Garage Door Replacement – 92.8%
- manufactured Stone Veneer – 93%
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 with mid-range costs. Generally speaking, minor renovations net a higher ROI than major renovations. Adding full additions also gives a lower return than simply making improvements.
It is important to note here, that in the luxury home market, high end improvements are often necessary, even though the return on investment isn’t as good. What is customary for your market is what is necessary if you want a chance at netting the highest price possible when you sell your home.
While not all improvements bring a return that homeowners would like, some improvements or repairs are absolutely necessary to sell the house. For example, if your roof is past it’s recommended lifespan and the comparable homes on the market have newer roofs, you have to face the fact that your old roof could be a detriment to your home selling quickly and for top dollar.
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 in 2022
Regardless of the return, some projects are just necessary to help sell a home. 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.
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 dysfunctional, a total renovation is probably unnecessary. You can start with the least expensive projects and see what a huge difference they make.
- Updated lighting. Out-of-date fixtures can really make a kitchen look dated, but the cost of new lighting is relatively low. Any big box store will have inexpensive lighting choices that are popular with today’s home buyers.
- Appliances. If you need to replace old appliances, make sure they are energy efficient, as today’s home buyers consider energy efficiency a priority.
- Consider appliances that fit in your home’s 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 and quartz are very popular, there are many other solid surface products that look great, but have fewer, if even no maintenance needs: silestone, soapstone, 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 with the best return on investment. With today’s open floor plans, make sure your kitchen colors flow with the rest of your home.
- It seems kitchen cabinet styles are always changing. New home sales reps told me last year that dark cabinets are out, and lighter wood tones are in (as I stood in the close-out model home admiring the dark kitchen cabinets). It seems wise to me to pick a cabinet style and tone that is timeless if you don’t want to update cabinets every few years.
- If your cabinets are hopelessly dated, but in otherwise good shape, consider cabinet refacing for a less costly fix than new cabinets. There are also many good paints on the market that work well with kitchen cabinets.
For additional Reading: Kitchen Trends for 2022
Does Remodeling the Bathroom Increase Home Value?
Bathroom updates are number two on a buyer’s wish list, 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 to the more costly 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 your 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 2022
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 décor.
- 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.
Paint is one of the best improvements you can do, for a minimal cost. It is also something that many people can DIY. It makes a huge difference, updating spaces and giving a clean overall feel to a room.
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.
- While the windows are clean, go ahead and lighten up the window treatments. Let as much natural light in as possible. And of course, keep the dust bunnies away!
- Adding the brightest watt bulbs your fixtures can take will brighten up the spaces as well. Of course, when lighting is bright, dirt shows up better, so you’ll have to keep a clean space.
Cleaning up the yard, the garage, and the outside of the home will make a huge difference to your home. Most of the time, it only takes a little elbow grease to make a huge improvement to your outdoor spaces.
Landscaping is an important aspect of curb appeal. Many studies show that a home buyer’s first impressions weigh heavily in their decision about a house. Fortunately, landscaping doesn’t have to be complicated or cost a fortune. Most of the time on a home that is not new, good landscaping consists of smart editing.
Clean floors, appliances, and fixtures, and uncluttered spaces will transform your home in an amazing way when you consider the cost is only elbow grease.
Adding a Home Office in 2022
With the drastic changes in our lives that came with the recent Pandemic, the number one item on our collective wish list is a home office. Many families would like more than one, as they are looking for space for their children to do their schoolwork.
If you have a space that can be dedicated to a home office, you are in solid home improvement territory! Without sacrificing other living spaces, carving out a dedicated work space will add value to your home.
Avoid Over Improvements in 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 30 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.
You also want to avoid major improvements that are too trendy. Ask yourself, if this will be out of date in five years? If so, is it an easy fix, or will it take either a lot of time, or a lot of money.
Tax Deductible Home Improvements
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: The Smith’s bought a home for $400,000 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 “cost basis”, making it $500,000. 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 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 may be able to 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 for example, may be 10% of your home’s square footage, so you can deduct 10% of the cost. Please consult your tax adviser for details on these deductions…see disclaimer above!
- 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
Life Considerations When Renovating Your Home
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, consider that 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.
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