Highest ROI: Top Home Renovations

Today’s housing market has limited inventory, along with rising home prices and interest rates. For that reason, many people have opted out of the real estate market entirely for now and are instead putting their money toward making some improvements to their current homes.

Even with inflation and supply chain issues, home remodeling projects are still going strong today. This is thanks in part to increasing home appreciation and the tappable equity now available to homeowners.

Spending on residential remodeling activity is expected to decrease a bit in the coming year, according to the Leading Indicator of Remodeling Activity (LIRA). Regardless, the market for this type of investment is still very strong. In fact, more than half of homeowners have a home renovation project in the works or are planning to start one by the end of 2024, according to a recent Houzz survey.

Maybe you would like to remodel primarily to make your home better suit your needs and personal preferences. But before spending a lot of money on a home improvement project, you should also consider the return on investment (ROI) of the home renovations you are thinking about. 

Read on to learn about the home improvement projects with the highest ROI, as well as some that won’t return as much value when it’s time to sell—or might even make your home more difficult to sell.

Home Renovations and the Appraisal Process

Before you go knocking down your kitchen walls or putting in hardwood floors, it’s essential to understand how home renovations impact the appraisal process when you sell your home.

Some homeowners may anticipate that the $20,000 they spend for a minor kitchen remodel will produce a $20,000 return on investment when it comes time to sell. Unfortunately, that is rarely the case.

While most remodeling projects do add some value to a home, here are a few things you’ll want to consider:

  1. The actual market value of a property is based on what buyers pay for similar houses in similar areas.
  2. Home remodeling projects rarely increase the home’s value dollar for dollar—in other words, 100% of the total renovation cost. For example, if a homeowner spends $40,000 on a home improvement project, it’s far from certain that the home will sell for $40,000 more.
  3. While some home renovations earn a higher ROI than others, it’s impossible to know for sure which projects will deliver the highest ROI. Homebuyers’ priorities and preferences change all the time.

A homeowner who spends a lot of money on a state-of-the-art bathroom remodel or a kitchen home improvement project should remember that this type of investment won’t be reflected 100% in an appraiser’s home valuation down the road.

To learn more about the responsibility of home appraisers during the appraisal process, click here to read our full article.

2024 Top Renovation Predictions

Now that we’ve set some baseline expectations on renovations, let’s explore what we anticipate being the biggest home renovation trends over the next 12-month time period:

  • The demand for accessory dwelling units (ADUs), aka guest houses, will only increase in 2024 as housing prices continue to remain high. ADUs are separate living areas, either attached to the home (such as an in-law suite or a basement apartment with its own kitchen and entrance) or detached from the main house (such as a backyard cottage designed like a small apartment). Homeowners often build these dwellings in order to help out their grown children or elderly parents.
  • Enhanced backyard space is a trend that is still going strong. Projects involving decks, patios, entertaining areas, backyard activities like pickleball courts, and elevated outdoor living will remain strong in 2024.
  • Updated kitchens and bathrooms tend to be on many homeowners’ wish lists. That won’t change, but we expect these improvements to be more focused on energy efficiency and space optimization. These types of projects include updating cabinets, upgrading countertops, adding bright light fixtures, replacing faucets, and swapping out older appliances for energy-efficient ones.

Home Renovations with Highest ROI

Here’s an interesting fact: According to the 2023 Cost vs. Value Report from Remodeling magazine, 9 out of the top 12 home renovations that yielded the highest rate of return were projects that involved the home’s exterior

This is evidence that improving curb appeal may be the wisest place to put your remodeling budget. An attractive exterior gives potential buyers that powerful good first impression.

Home exterior projects with high ROI

These are the exterior improvements that provide enhanced curb appeal and tend to bring homeowners the most return on their investment:

  • Garage door replacements were among four projects on the Remodeling magazine list that had an ROI percentage higher than 100%. This means that the amount recouped in the home’s sale would be potentially even more than the cost of the original project. Replacing a damaged or unattractive garage door tends to yield a 102.7% ROI and is one of the easiest and most cost-effective fixes for any home.
  • Replacing a home’s siding with attractive, modern materials also pays off for homeowners today. You might expect to recoup 102.3% of your investment for replacing your siding with manufactured stone, 94.7% for vinyl, and 88.5% for fiber-cement.
  • Replacing the front entry door with a steel door provides more security and fire resistance. It may also turn out to be a good long-term investment, with a typical ROI of 100.9%.
  • New windows often deliver an excellent return on investment, especially if you choose vinyl (68.5%) or wood (61.2%).
  • Replacing a home’s roof with asphalt shingles had an expected ROI of 61.1%.
  • Finally, a project to replace a plain front door with an upscale fiberglass model with decorative sidelights yielded a typical ROI of 50.4%.

Home interior projects with high ROI

The remaining 3 of the top 12 projects in Remodeling magazine’s report involved home interiors. Here were the interior home renovations with highest ROI:

  • The highest ROI project on the list, at 103.5%, was converting a fossil fuel burning furnace to an electric heat pump. This type of investment has a high initial cost but immediately begins to save a homeowner money in the short term by reducing HVAC costs. And the increase to the home’s value realized at resale may be more than the cost of the original project.
  • Another interior project that made the top 12 list of renovations with the highest average ROI was kitchen renovations at 85.7%. But this return on investment was only for a midrange project of replacing cabinet fronts (while leaving the cabinets’ boxes), replacing appliances with energy-efficient models, replacing countertops and flooring, and installing a new sink and faucet.
  • Finally, a midrange bath remodel—replacing the tub, toilet, vanity, medicine cabinet, and flooring—had an expected ROI of 66.7%.

Renovations to Avoid

Some projects may add to your home’s appeal but are higher risk as investments—they are so expensive that they just don’t return a high average ROI. For example:

  • A designer kitchen may add to a home’s appeal, but this is one project that is easy to overspend on. Breaking the bank on a fancy kitchen often doesn’t deliver a good ROI. (An upscale kitchen remodel can be expected to deliver about a 31.7% return.) Small and functional projects tend to produce a higher return. 
  • Adding a midrange or upscale primary suite is another project that’s so costly that it’s hard to get a good rate of return. (You might expect just 22.7% ROI for an upscale primary suite and 30.0% for a midrange one.)
  • Finally, adding bathrooms does add some value to a home—but you will spend a lot of money you likely won’t be able to recoup. (An upscale bathroom addition might net you a 26.6% return, while a midrange one might see 30.2%.)

Some projects not only don’t return much ROI, but they can even drive potential buyers away. Homeowners who are not planning to sell soon may be happy with these projects, but they should still carefully consider the higher risk of having a more difficult time selling the home down the road. With that in mind, here are two projects you may want to take a pass on:

  • An in-ground swimming pool isn’t just costly to install; its maintenance costs also increase the home’s monthly expenses. On top of that, families with young children often avoid properties with pools because of safety concerns.
  • Garage conversions may work well for growing families, but many buyers don’t see the value in them. Here’s why: In addition to secure parking, they’re also looking for more storage space.

The Bottom Line on Home Renovations

The reality is that buyers’ needs and wants change with the times, so there are never any guarantees when it comes to home renovations. If you want to play it safe, consider smaller projects that can add value by improving curb appeal, like an exterior paint job, a new roof, or better landscaping.

In the ever-changing real estate market, it’s important to strike a balance between your personal preferences and the potential for increased property value. Remember that smaller projects, or those that enhance your curb appeal—like upgraded appliances, exterior paint, a new garage door, or improved outdoor spaces—can often deliver surprising returns on investment.

By carefully evaluating your home renovation choices and aiming for projects that enhance both your living space and your property value, you can ensure that you’re making the best choices for your quality of life now and for your financial future.

We want to leave you with this thought from our own Gerry Allard of Kairos Appraisal Services: 

“Among these larger remodeling ideas, there are smaller undertakings that can bring surprising results. Interior and exterior paint can significantly improve the look and appeal of your home. Updated trim accents and fixtures can provide a more contemporary look—and fresh appearance—at minimal expense. These can go a long way toward bringing greater value and appeal.”

Alex Todak