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When is Home Renovation Worth It?

by Laura Adams

Due to the soft real estate market, selling a home can take years and leave you with a big financial loss. Many home owners have decided that instead of going through the heartache, they’d rather stay in their home and make some renovations. But which remodeling projects are worth it? You definitely don’t want to throw good money after bad. In this post I’ll explain when you should consider doing a renovation and tell you which home projects can pay off the most.

When Is Home Renovation Worth It?

Let’s start with three situations when doing a home renovation can pay off either emotionally or financially:

  1. Your home isn’t functional for your needs. Does your home have a strange layout where you have to walk through a bedroom to get to the only bathroom? Or do you have a kitchen with appliances that barely work? When your home disrupts your ability to sleep, eat, or get to a bathroom, it warrants a renovation—if the cost fits your budget, of course. Making a few renovations can really enhance how you feel about your home and make it a place you want to stay in for the long-term.
  2. You can save money. Certain renovations can lower your expenses, such as new energy-efficient windows and doors—especially if your home is older and drafty. Building a garage might save money if you’re paying a hefty monthly fee for storage. Having an exercise room might save you the cost of gym membership–you get the idea. If you plan to stay in your home, consider not only what a remodeling project will cost, but also what it might save you over the long run.
  3. Your home isn’t competitive in the marketplace. If you do want to sell your home now, or in a few years, and know that it’s outdated compared to similar homes nearby, doing a remodel can help you get a leg up on the competition.

Never Over-Improve Real Estate

The reason you need to be cautious about pulling the trigger on a remodeling project is that it’s very easy to over-improve your home. Over-improving your home occurs when you put more money into your home than you’ll ever get back when you eventually sell it.

Many people mistakenly believe that installing a $25,000 pool automatically adds $25,000 to their home’s value. Nope, unfortunately that’s not how it works! You rarely get a dollar-for-dollar increase in market value from any kind of remodeling project. So you have to be strategic about whether you should remodel in the first place and if you do, which projects will benefit you the most.

Bigger isn’t always better. There is a misconception that the more improvements you make to your home, the more it will be worth. This isn’t always true, especially when your home is the most expensive home on the block. Many people prefer to buy a similarly priced home in a nicer neighborhood rather than buy the most expensive home in a neighborhood because nicer neighborhoods are generally more desirable and therefore easier to resell.

Inexpensive Ways to Improve Your Home

When selling your home, consider inexpensive methods of improving its curb appeal before spending a lot of money on a major home improvements. If the first appearance of your home doesn’t instantly make a buyer think that your home is neat, clean, and well-cared for, it’s possible they will never make it through the front door.

Here are three tips for sprucing up your home without going broke:

  • Repaint the exterior if any areas are peeling or discolored. Painting your home is probably the biggest bang for your buck when it comes to remodeling.  Paint is transformative and easy to do, but inexpensive compared to other home improvements.
  • Clean up the front entrance. The front door should be spotless because it’s usually the focal point of a home. Make sure your front porch welcomes potential buyers with a new doormat and healthy flowers or plants.
  • Manicure the front lawn. Spending money for fresh mulch, new plant beds, and the removal of dead tree limbs will be worthwhile.

Chapter 8 of my new book, Money Girl’s Smart Moves to Grow Rich, is full of tips about real estate. Some of the topics I cover are buying versus renting, how much home you can afford, choosing a mortgage, and taking the home mortgage interest tax deduction.

Consider Remodeling Projects with the Highest Payback

If you have an outdated home that won’t be competitive on the market as-is, or is keeping you from wanting to stay there for the long-term, consider what Remodeling Magazine says are the five mid-range projects that give you the best payback:

  1. Entry Door Replacement (steel) provides a 102.1% return
  2. Garage Door Replacement provides an 83.9% return
  3. Deck Addition (wood) provides a 72.8% return
  4. Minor Kitchen Remodel provides a 72.8% return
  5. Siding Replacement (vinyl) provides a 72.4% return

And if you’re wondering about the lowest value-to-cost project, that’s remodeling a home office, which gives you a 45.8% return.


Published or updated October 13, 2011.
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{ 6 comments… read them below or add one }

1 K.C.

Good points. As to the home office renovation, it may return the least amount of money when the house is sold, but the cost of the renovation can be deducted from the proceeds of a business operated out of that office, if the office meets the requirements for the home office deduction, which would make the actual cost of the remodel much less. Also, if a remodel of a home office allows a business to continue to operate out of the home rather than leasing office space, the savings realized by keeping the business in the home need to be taken into consideration.

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2 20 and Engaged

Great ideas Laura! Our landlord is allowing us to make any renovations for the most part, but I’m holding back because I’m not sure if we’re going to buy the place after our year lease is up. So far, all we’ve done is dug the weeds out the backyard. I want to change shower heads, lay down new linoleum, and possibly paint or put up wall paper. I’d love to do more, but I don’t want to put too much into a house I may not stay in.

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3 Jenna

Home renovations are also great when you are trying to get the most optimized resale price. Most improvements can be tax deductible (save your receipts) too!

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4 Pat S.

I don’t particularly like the idea of renovation for capital appreciation. I believe a house is a place to live with an inherent value. Any money you put into it should improve its livability. Bottom line: do it for yourself and your family, not for a prospective home buyer.

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5 Jon | Free Money Wisdom

For me, when I own a house someday, renovation will be strictly because I want it done, not because the value will go up at all. A nice yard is the mecca of a house in my opinion. If you take care of that, it makes the rest of the house better!

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6 fredct

I’m always entertained that the definition of ‘return’ used in the housing industry is it’s own special term. If I put $100 in the bank, and could only then take $83.90 out… no one would call that an “83.9% return” on my money… it’s actually a 16.1% loss. Do things that provide you enjoyment or utility in your life, but don’t let the misleading “80% return” make it sound like it’s a money maker.

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