How to Calculate Home Improvements ROI

Home Selling

How to Calculate Home Improvements ROI

July 23, 2019 | by Jamie Ayers

At A Glance

The ROI of home improvements depends on factors such as the location of your home and the value of the elements you’re updating. Let’s look at ways to calculate ROI on home improvements and get more money out of your projects.

How to Calculate Home Improvements ROI

Home improvements are a great way to make a house more appealing to buyers. But before you invest in renovations or remodeling, make sure they’ll give you the returns you’re expecting. And that’s where researching the \ improvements you’re planning comes into the picture.

Cost versus value reports published on remodeling websites are one way to gauge the ROI of projects. The report lets you see what percentage of invested money will be recouped by homeowners. You can look at the data at a national level or for different regions within the country.

Improvements like a garage door replacement, kitchen remodel, and the addition of a deck have a very high return on investment. That said, the actual return on investment on home improvements you’re considering depends on a variety of factors. Hiring a local agent can help you learn what improvements will pay off in your area.

Let’s take a look at what those factors are.

Factors Affecting ROI of Home Improvements

Home Location

If you look at a cost versus value report, you will notice that the cost recouped on home improvements can vary by a significant degree based on region. An addition bathroom has a 57.7% ROI in New England, whereas in the Central Southwest region it has an ROI of 65.3%.

This clearly shows that where you live has an impact on how effective different home improvements are. It’s important that home sellers understand the local market before choosing what renovations to make.

Recency of Home Improvements

The newer a renovation is, the more likely you are to recoup the costs on it. This is especially true when you install a component that wasn’t part of your house before, like a new fence or a deck.

Knowing this, homeowners should time their renovations right before the sale of their home. It’s also important to save invoices from contractors and any other documentation for the renovations made in the run up to selling a house.

Element Being Replaced

If you’re replacing a home component instead of installing a whole new one, then the ROI also depends on what you’re replacing. For example, if you replace your wood deck with a composite deck, you should factor in the difference in value between the two when calculating the ROI.

Let’s say the wood deck cost you $2,000 and the composite deck costs $3,500. In that case, the highest possible ROI is $1,500.

Target Market

The value of the home improvements you make while selling a house depends a lot on who your target buyer is. The kind of improvements that will help you sell to a family is very different from those that will appeal to young professionals. Working with a real estate agent is the best way to know what kind of home improvements will have the highest ROI given your target demographic.

Potential Cost Savings

Any renovations you make that lead to cost savings for the future occupants of your house will have a high ROI. Additions like solar panels or energy-efficient windows are always a good bet when selling your house. It’s easy to sell these to potential buyers since you can quantify how much they’ll save each year with them.

Raising Funds for Home Improvements

Another important factor to take into consideration while making home improvements is your finances. Ideally, you would have the cash available to pay for them, but that isn’t always realistic. There are a few ways you can go about raising the funds you need to make renovations before selling your house.

A Home Equity Line of Credit (HELOC) is a great way to leverage the equity that you have in your house. If you qualify for a HELOC, your bank will give you a certain credit limit and a draw period within which you can take advantage of your line of credit. The main benefit of using a HELOC is that you only pay interest on the money that you use and not your total credit limit.

Another option for homeowners who need funds to pay for home renovations is a cash-out refinance. This form of financing also depends on the amount of equity you have in your house. A cash-out refinance gives you a new mortgage that covers your existing mortgage and gives you some cash on top of that. You can use the extra money to pay for the home improvements that you need to make.

Homeowners can also save some money for home improvements by working with low-commission real estate agents. Clever Partner Agents charge only $3,000 on homes over $150,000 or a 1% commission on homes over $350,000.

Let’s say you’re selling a house worth $500,000. You would save $10,000 just by choosing to sell your house with a Partner Agent. That’s money that you can use to pay for home improvements. Since our Partner Agents have extensive knowledge of the local market, they can help you decide which home renovations will produce the greatest returns.

Contact Clever to sell your house with a Partner Agent in your city and raise funds for the home improvements you need to make.

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