How to Determine the ROI of Home Renovations

By Carolanne Chavanne, CFP®

The concept of return on investment (ROI) for home renovations isn’t always clear-cut. Unlike traditional financial investments, the ROI of a home renovation can be a bit fuzzier. Factors such as location, market trends, quality of work, and personal preferences all play a role in the final ROI.

The ROI Equation: Beyond Monetary Returns

While it’s tempting to focus solely on the potential dollar signs when considering a renovation, there’s more to the equation than just monetary returns. The true value of a home renovation lies not only in its impact on resale value but also in the enjoyment and comfort it brings to your daily life.

Imagine coming home to a beautifully renovated kitchen that makes cooking a joy rather than a chore or entertaining in a thoughtfully designed living room that reflects your style and personality. These intangible benefits are priceless and are often overlooked in the quest for ROI.

Key Factors in Determining ROI

That said, there are several factors to consider when trying to calculate the ROI of your home renovations. Here are some key ones:

The Local Real Estate Market
Before embarking on a renovation journey, research your local real estate market. Understand what features and upgrades are in demand. Talk to real estate agents to get an idea of what buyers are looking for in your area.

The Scope and Quality of Renovations
The scope and quality of your renovations will have a significant impact on your potential ROI. High-quality materials and skilled workmanship generally yield better returns; however, be careful not to over-improve the neighborhood, as this can lead to diminishing returns.

Comparable Properties
Look at comparable properties in your area. How do they compare to your home, both before and after renovations? Understanding the value of similar homes can provide a ballpark figure for a potential ROI.

Functionality and Personalization
While resale value is essential, don’t underestimate the value of functionality and personalization. A home that is tailored to your needs and lifestyle is invaluable. Focus on improvements that enhance your daily life, such as additional bedrooms for a growing family or a home office for remote work.

Energy Efficiency
Energy-efficient upgrades not only reduce utility costs but also appeal to eco-conscious buyers.Consider investments in insulation, energy-efficient appliances, solar power, and smart home technologies.

While ROI is a crucial consideration, it shouldn’t overshadow the primary purpose of making your home a place where you can thrive. The goal of a home renovation should be to create a comfortable and functional space for you and your family.

As you embark on your renovation journey, remember that the ultimate goal is not just a return on investment but a return on enjoyment, comfort, and satisfaction in the place you call home.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.