Home Renovation Returns are Falling | Think Realty
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Home Renovation Returns are Falling

Home-Improvements

"Five years ago, a kitchen renovation could have netted more than 100% return on investment (ROI)."

As a real estate investor, to take on a home renovation there is an art to “forcing appreciation” or, as it is more commonly described, “adding value” to a property. The process usually involves a series of upgrades and home renovations to an existing property in order to bring the property up to retail standards; it’s pretty much the storyline for all of HGTV’s biggest hits lately. However, according to Remodeling magazine’s 2018 “Cost vs. Value” report, the returns on even the most popular and necessary upgrades are no longer what they once were.

For example, five years ago, a kitchen renovation could have netted more than 100% return on investment (ROI). More generally, during 2016 and 2017, home renovation investments netted the average homeowner 64% ROI. In 2018, that number falls much lower, at 56%. Readers should note that these calculations do not factor in money saved in carrying costs in markets where certain renovations expedite the listing and sales process. The researchers suggested the declining returns were likely associated with higher costs of labor and materials.

Top Home Remodeling Projects for 2018

According to the Remodeling report, the top five home renovation projects for 2018 are:

  • Garage door replacements
  • Addition of manufactured stone veneer
  • Wooden deck addition
  • Minor kitchen remodel
  • Siding replacement

All of these upgrades and repairs came with recouped costs in excess of 76% and replacing the garage door and adding stone veneer both posted recouped costs of more than 97%.

Think Regional, Not National

Of course, investors must think about their home renovations in light of the local market preferences, not national ones. For example, in the southeastern United States, replacing the roof snagged property owners just under 70% ROI. However, in the northeast, that same roofing replacement was worth 72%, and in the west north central region of the country, the upgrade was worth about 57% ROI. The report also offers some analysis at a city-wide level, although the methodology does not include confidence intervals for results on that scale.