Home is where the heart is, and it may also be where your biggest investments lie. How you handle investments in your home can factor into whether it grows as an asset or functions as more of a liability. Home improvements tend to be a major factor in this equation, so it’s important to be careful in choosing which improvements to make.
Ideally, a primary residence should account for no more than 25 to 40 percent of your net worth, but in reality, most American homeowners hold the lion’s share of their personal wealth in their homes. No matter where you fall on this spectrum — and especially if you also own a vacation home or investment property — it’s important to pay careful attention to your home improvement choices.
Here are ten home improvements that are most likely to have a positive return on investment.
1. Curb Appeal Boost
First impressions matter, so improving the exterior and landscaping of your house is worth the expense.
Giving your home a facelift by sprucing up the outside finishes and trim will make an older home appear up-to-date and more appealing. Well-designed and maintained landscaping signals to buyers that the home is welcoming and well cared for, enhancing perceived value.
2. Window Replacements
Depending on the age of your home and the location, window replacement can be a solid investment.
If you have an old or historic home built before the 1960s, it could be worth hanging onto original windows made of rot-resistant old-growth wood, steel frames, or leaded glass. Otherwise, you probably have outdated, single-pane or double-hung windows in questionable condition that are due for a more energy-efficient, vinyl update, especially if you live in a big city or colder climate.
3. Layout Change
Few things make a house less desirable than an awkward layout.
A bad floor plan feels uninviting, cramped, dark, and stuffy, whereas a good floor plan maximizes space, light, and airflow. Good flow makes a home more livable and functional, allowing for easy movement from space to space and a balance of well-defined areas.
Buyers have favored open floor plans for years, but time at home during the pandemic has renewed appreciation for more private spaces. In any case, improving a bad floor plan is almost always worth it.
4. Bathroom Remodel
A bathroom remodel, within reason, is likely to give you a good return on investment. Updating to a low-flow toilet, classically stylish tile, solid-surface counters, new lighting, and nicer fixtures will improve the look and feel of the powder room and full baths in your home.
A clean, modern rehab is worth it, but be careful not to go overboard. Blowing the budget for a luxury bathroom remodel might be a wise investment if you are going to enjoy it for years to come, but it’s not as likely to fetch a good return unless your home’s value has increased tremendously.
5. Kitchen Renovation
The kitchen is the heart of the home, and many families spend a lot of time there, both day to day and when entertaining. An old, shabby kitchen can bring down the value of your home, while even modest updates can freshen up the kitchen, making it more functional and appealing to buyers.
Modernizing appliances, upgrading cabinets, countertops, and flooring, and replacing your sink, faucet, and hardware are nearly always investments worth making. However, as with bathrooms, going all-in on a brand new luxury kitchen might allow you to enjoy your home more, but you are unlikely to recoup your investment unless the home values in your neighborhood have skyrocketed.
6. Basement Finishing
Having a basement can add a significant amount of livable square footage to your home, but only if the space is finished. Cement floors, cinder block walls, and exposed ductwork in the ceiling don’t make for a very comfortable atmosphere. However, some drywall, flooring, paint, and ceiling covering will go a long way toward creating a usable space.
Unlike some other spaces in the home, splurging to create a true entertainer’s haven in the basement can often garner a considerable return at resale.
7. Added Bedroom
A home’s value generally goes up with more bedrooms, so going from a three to four bedroom home is likely to pay for itself when you sell. But building on an additional structure can be costly, and you may not get your money back.
What can fetch a good return, however, is converting a space in your existing structure into a bedroom. This can be accomplished by enclosing or dividing a space and adding a closet, or finishing an unfinished space such as an attic, basement, or bonus room. Make sure your HVAC system can handle the load of an additional room or you may need to add another unit, increasing the costs that you’ll need to recoup.
8. Porch, Patio, or Deck Addition
Adding nice, usable outdoor living space, such as a porch, patio, or pressure-treated wood deck can add more value to your home. Having a place to eat, lounge, and entertain outside can provide an enjoyable lifestyle upgrade. Buyers also consider these spaces valuable add-ons, especially wood decks.
Considering creating a “backyard oasis” with a pool, extensive landscaping, and upscale amenities? If so, don’t expect to get your money back. It may be worthwhile for the enjoyment it gives your family, but the monetary ROI is rarely there.
9. Paint
Painting is one of the least expensive home improvements you can make that’s sure to be worth it. Freshening up the interior and exterior of your home with a fresh coat of paint can do wonders for your home’s appearance without breaking the bank.
If you plan to be in your house for years, you can add splashes of color to express your personal style, but if you are selling soon, stick with toned-down, neutral colors.
10. Maintenance
Finally, this one should go without saying, but it must be said. Any investment you make in your home in an effort to maintain it is inherently well worth it.
If you want your home to uphold its value and be sellable, you have to make investments in maintenance as needed, such as minor repairs along the way, replacing rotted wood, fixing small cracks and leaks, replacing old HVAC systems, getting a new roof, cleaning and repairing gutters, and pressure washing the exterior.
Ignoring tiny issues or delaying maintenance can turn into major headaches down the road while making your home appear run down and poorly maintained, which will likely scare away buyers if you decide to sell.
Your Home is Worth It
A home is more than just real estate. Even a vacation property is your home away from home and an investment property is someone’s home. Creating a welcoming, fresh, and well-maintained space is a good investment in your well-being and peace of mind, and if you’re smart about the upgrades, it can also increase the value of your home.
The key is to make sure you are not selling yourself short with modest upgrades or builder-grade materials when buyers would expect much more or, on the other hand, over-improving beyond the value of your home. Do your research and form a relationship with an experienced real estate professional to determine what’s best for your home and market.
John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.
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