Table of Contents
- How to Get the Best Return on Investment for Home Improvements in 2021
- 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…
- Adding a Home Office in 2021
- Avoid Over Improvement on Your Home
- Are Some Home Improvements Tax Deductible?
- Exceptions to the Rules Regarding Tax Deductions
- Life Considerations When Renovating
How to Get the Best Return on Investment for Home Improvements in 2021
Owning a home is an investment, most likely the biggest investment most people make. Along the journey of home ownership comes home maintenance, and eventually home improvements. Getting a good return on your investment is a major consideration when it comes to maintaining and improving a home’s value over the years.
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 have been on a healthy increase for several years in Frederick and Central Maryland, home maintenance and selective improvements are often necessary to get top dollar for a home when you eventually 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.
- Recommended Reading: Southern California real estate pro, Sharon Paxson, points out the many costly mistakes that homeowners make that affect their home value. At the top of the list has to be deferred maintenance. Aside from the actual items that a buyer sees that need to be fixed, these items will send a message to the buyer that there may be other things which have not been maintained in the home. Forget any hope of getting top dollar for your home.
Home Improvement is Necessary
Most homeowners find that making steady improvements during their years of ownership help 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.
Some improvements are not worth it…the cost and effort far exceed the return.
In the 28 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 2020 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 what gets a good return on investment in Maryland doesn’t work well at all in many 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 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.
These studies have also shown that over the last six years, 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 106% of the investment, and adding manufactured stone vener returned 99.5% of the investment, on average.
Here’s the breakdown in order from least to best return on investment:
- Bathroom Addition (midrange) 53.2%
- Bathroom Addition (upscale) 55.1%
- Bathroom remodel (midrange) 65.4%
- Bathroom remodel (upscale) 55.4%
- Bathroom remodel (universal design) 60.1%
- Minor kitchen remodel (midrange) 80.3%
- Major kitchen remodel (midrange) 61.2%
- Major kitchen remodel (upscale) 57.9%
- Master suite addition (midrange) 63.3%
- Master suite addition (upscale) 49%
- Deck addition (composite) 71%
- Deck addition (wood) 79.7%
- Entry door replacement (steel) 73.4%
- Grand entrance (fiberglass) 58.7%
- Garage Door replacement 86.2%
- Window replacement (vinyl) 74%
- Window replacement (wood) 69.9%
- Siding replacement (fiber cement) 81.3%
- Siding replacement (vinyl) 83.7%
- Manufactured Stone Veneer 99.5%
- Roofing replacement (metal) 60.9%
- Roofing replacement (asphalt shingles) 73.2%
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.
While not all improvements bring a return that homeowners would like, some improvements or repairs are absolutely necessary to sell the house…in a 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 the fact that your old roof is a detriment to your home selling quickly and for top dollar.
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.
- 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: 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.
- Kitchen cabinets are always changing. New home sales reps tell me that dark cabinets are out, and lighter wood tones are in. 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 with kitchen cabinets.
For additional Reading: Kitchen Trends for 2020
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 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 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 2020
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.
- Kyle Hiscock, real estate agent in Rochester New York, has some more great tips for budget home improvement that adds value to your home. A common reason why a potential home buyer doesn’t pursue a property is because it lacks storage space. Maximizing storage space is a great project for adding value to a home and can be done cheaply.
Adding the brightest watt bulbs your fixtures can take will brighten up the spaces as well.
- Recommended Reading: Lighting Can Add Value to Your Home…in this insightful article from The Lighting Tutor, Eric Jeanette gives some great tips on adding value with good lighting. Outside lighting is something that homeowners often overlook, but when you combine landscape lighting plus entrance lighting, you can transform the exterior of your home into a show place.
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.
- Recommended Reading: Florida Realtor Danny Margagliano has 6 great tips to instantly add value to your home. Another area that homeowners often overlook is landscaping. This is the very first impression a buyer will get of your home and you’ll do well to make sure it’s a positive one from the first minutes of interaction.
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 2021
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.
- Recommended Reading: Which brings me to an important point…never sacrifice bedrooms or bathrooms. Cincinnatti real estate agent Paul Sian points out that decreasing the amount of bedrooms in your home will definitely decrease it’s value. In most neighborhoods today, going from four bedrooms to three bedrooms reduces the value of your home. Not only in the buyers mind but also for appraisal purposes. Be sure to read about other home improvements that could suck the value out of your home.
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.
- Recommended Reading: Bill Gassett, Massachussetts real estate pro, has 30 great tips pointing out mistakes that people often make in home improvements, thinking they are improving their homes. We often see luxury upgrades on moderately priced homes that simply don’t give a good return on investment. Check out his other good tips to save yourself time, money, and hassle when you’re considering home improvements.
After 28 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 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
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 thta 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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Contact us to help you negotiate your Frederick Home sale.
Chris & Karen Highland
eXp Realty – 301-301-5119
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