With people staying inside their homes more these days, many are running out of options to fill spare time. It’s only natural to look around your house and jot down a list of home improvements to help you stay busy. But before you start lining up projects, here are a few things to consider to ensure you’re getting the most value from upgrades—not all renovation investments yield equal payback.
Depending on the age and upkeep of your home, you could end up with numerous improvements to tackle.
■ Assign repairs that ensure safety as a higher priority over those that simply change aesthetics.
■ Be cautious of renovations that might “over improve” your home compared to other properties in your neighborhood.
■ Keep in mind projects often lead to other unexpected issues. Your renovations could cost an additional 20% to 30% due to unforeseen circumstances. Decide if you need to hire a contractor. If so, get at least three bids and verify references from homeowners for previous work done.
BUILD EQUITY AND VALUE INTO YOUR HOME.
If your home doesn’t need structural repairs, basic updates likely will provide the most value.
■ Never underestimate the value of a fresh coat of paint—it may add the most bang for your buck to rejuvenate a bedroom or common space.
■ Consider modest kitchen and bath remodels. Avoid deep personalization and extravagant features that could deter as many buyers as they attract.
■ Adding versatile square footage to unfinished areas will likely increase value. For instance, turning a basement into a second living room can add great functionality. Adding a bathroom to unused space also could pay off.
■ Energy efficiency upgrades such as windows and doors to insulate problem areas and smart devices to monitor energy consumption could add value and save on future heating and cooling costs.
■ Certain improvements (from minor to major renovations) can add immediate impact to your home. Here are a few examples of some of the most popular projects with the highest average return on investment (ROI).
- Replacing exterior front door or garage door (94.5% ROI)i
- Interior paint (107% ROI)ii
- Window replacement (69%-72% ROI)i
- Upscale bathroom remodel (57% ROI)i
- Siding replacements (75%-78% ROI depending on material)i
- Upscale kitchen remodel (54% ROI)i
- Minor kitchen remodel (78% ROI)i
- Wood deck addition (72% ROI)i
- Universal design bathroom (62% ROI)i
Decide how long you plan to stay in your home. While there are many projects that will help increase home value with immediate impact, others don’t provide the same kind of returns. The rules can change if you plan to stay in your home for an extended period of time or if this is your “age-in-place home.” Weigh your future enjoyment and needs with the cost of the project.
Determine how to pay for the renovations. If you’re facing financial uncertainty in this economic environment, make sure you’re spending from current cash flow or a cash surplus. Avoid depleting your emergency fund or neglecting to plan for home emergencies.
With interest rates at historic lows, home equity lines of credit also are an attractive option for financing. Depending on the terms of an existing first mortgage, a refinance cash-out mortgage may be a solution if you can reduce your existing interest rate and/or reduce the term of an existing mortgage. Consider talking to an advisor who can help you explore your financing options.
i 2020’s Smartest (and Dumbest) Remodeling Projects: What Pays Off vs. What You’ll Regret By Jennifer Kelly Geddes. Jan 15, 2020
ii The paint colors that can boost your home’s value By Teresa K Traverse. January 9, 2018
Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of June 19, 2020. This summary is intended to provide general information only, may be of value to the reader and audience, and is reflective of the opinions of Commerce Trust Company.
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