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If you're investing money into a home remodel, it's natural to wonder how your investment will benefit you in the future. We're here to help you re-think ROI – are you ready?
Will a freshly redone kitchen increase home value? How much more likely are homebuyers to purchase your property if you install an outdoor living area or update your curb appeal? Does finishing the basement mean more money for you in the long run?
Our team gets questions like these regularly from our homeowners, and they all revolve around one central concept: return on investment.
We're not only here to answer your ROI-related questions, but to dive deeper into what ROI is, and how the "answer" can vary based on what you value as your main priority and the underlying reason for choosing to remodel any space within your home. Let's get into it.
Jump to:
How Do You Calculate ROI on a Renovation?
How Much Does Remodeling Increase Home Value?
What are the Worst ROI Home Improvements?
Is ROI Important? ROI & Forever Homes
The Basics: What is ROI in Remodeling?
Although it sounds intimidating, ROI (also known as return on investment) is a relatively simple concept.
In the home remodeling world, ROI compares how much money you invest in an improvement and the value that upgrade adds to your home, expressed as a percentage. It's essentially the amount of your investment you get back in the form of increased property value. It's a simple enough concept that can be answered with a few clicks of the calculator, sure. But we implore you to keep reading to dig deeper, as we're going to reveal The Big Secret™ to understanding remodeling ROI that no one is talking about. Here's a hint: Time.
The Basics: How Do You Calculate ROI?
To calculate ROI, you need to know the total cost of your remodeling investment and the final value of your upgrades. You will only know these numbers for sure once your remodel is complete. To calculate ROI before starting your home remodel, you'll have to use estimates.
Coming up with the total cost of your remodeling investment should be easy enough; you can reference research or cost estimates from your remodeler. Figuring out the final value of your upgrades is a little more challenging. We recommend consulting with a realtor or appraiser to get this number.
Once you have the figures you need, you can calculate ROI in two simple steps:
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Divide the final value of the upgrades by the total cost of your remodel
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Multiply by 100 for your final ROI percentage
Here's how this looks in practice if you were to calculate ROI on a bathroom remodel:
Say you spent $50,000 upgrading your bathroom. You get with a realtor, and they tell you that the resale value of your improvements is $32,000. Divide 32,000 by your original investment ($50,000), and you get .64. Multiply by 100, and your bathroom return on investment comes to 64%. It's important to remember what we talked about – time. That 65% ROI is calculated in the "now", without taking time (the future) into account.
Pretty easy, right? *insert crickets chirping* We're here to continue to break it down.
Where Can I Receive the Highest ROI in My Home Remodel?
Let's take a breather: Before reading this section, we want to be transparent. We built our company, our arsenal of happy homeowners, and our entire purpose around honesty and trust. To put it bluntly; if you've ever worked with us, you know that one of the first things we tell you is to not expect to see immediate ROI on your home. That is not because it's impossible, but rather it's because we are working with you to turn your house into your dream home. Unique. Bespoke. Very... you. That's what we value most – not numbers.
There are two ways to ensure your remodeling ROI is high: First, pick remodeling projects that have universal appeal to buyers. You may be a lover of fine drinks and want to install a wine cellar in your home, but that's a highly specific home upgrade that most homebuyers don't care about or want. It's better to spend that money revamping your primary suite — something that will benefit any homeowner.
The other way to increase your immediate ROI is to keep your remodeling costs down. The higher your expenses, the more difficult it is to get a resale value that matches your investment; thus, your ROI will decrease. However, if you keep your costs low, your resale value will be much closer to your total investment, increasing ROI. In other words, it's small home improvements that make a big difference when it comes to home value.
Here's a list of remodeling projects that tend to have the highest ROIs:
- Minor kitchen remodel (and, to a lesser extent, major kitchen remodels)
- Exterior improvements such as door, window, and siding replacements
- Landscaping
- Finishing an attic or basement
- Updating paint and hardware
- Garage door replacement
The Big Secret
If you're looking for instant/immediate ROI, don't remodel. That's a "home flippers" process, and not what we do here at Compelling Homes. The big secret? Stay in your home for 7 years. That's it.
Each year, the cost of construction goes up by 3-6%. So, compound that interest using the same exercise as above. For example, if you spend $50k, it's worth $32k instantly. The $18k difference is between the "cost" and the "value".
Watch how fast we can make that back up in 7 years: Factoring in a 5% cost year-over-year increase, that $50k cost in 2022 now costs $70,355.02 in 7 years.
The bottom line? If you choose to sell your home in 7 years, the value of the exact same remodel is $20k more expensive in 7 years – making up the difference of the low ROI immediately upon its completion.
We repeat: Stay 👏 in 👏 your 👏 home for 7 years if ROI is your priority.
What are the Worst ROI Home Improvements?
First of all, let's just get it on the record that this section is titled as such to catch your attention. Do you want to know a little secret? We'll let you in on it: There is no such thing as a bad home improvement project.
There are, however, home improvement decisions that don't reach your ultimate goals. As mentioned above, the more specific or costly your home improvements are, the "worse" your ROI will be if you are valuing dollars to dollars. We are passionate about valuing dollars to love. Obsession. Relaxation. We value dollars to years spent in your home making memories.
However, since we are here to be a resource for homeowners of all shapes, sizes, dreams, beliefs, and budgets, we're also here to be real. To help. To provide non-biased and situationally accurate information.
If you are simply looking to remodel your home and get some money back (read "remodel & sell"), we would recommend not prioritizing the following:
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Pools and pool houses
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Wine cellars holding more than 500 bottles of wine. (Think; holy-grail of wine cellars. This is a personal statement for your enjoyment, and you have limited your buyers, but it's worth more than you paid for it for that one buyer)
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Game rooms or home theaters
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Upscale primary suite additions (Think; a 2-story $500k primary wing as "difficult to resell")
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Roof replacements
The Very Big, Very Important Caveat to "Worst" ROI Home Improvements
Long story short: home remodeling isn't all about ROI. Sometimes, the custom and unique features that make your home "yours" far outweigh how much money you'll "get back" from the improvements.
If you just can't (or don't want to) live without that super fancy bathroom or custom-built home office, you can work with your remodeler to achieve the same effect while still boosting the project ROI as much as possible.
We do this all the time with our homeowners. A client may come to us with a vision of stunning marble flooring for their bathroom remodel. Here's the breakdown of a situation like this:
- As we value transparency, and marble is costly and can stain or crack without proper care, we advise our homeowners not to go in this direction if ROI is a significant factor for them. Instead, we can use a material, such as porcelain, that can be made to look like marble; this accomplishes the look they wanted without the extra money and decreased ROI that comes with marble.
- Maybe the same homeowner wants to epitomize luxury with a $7,000 bidet or six-point body spray in the shower. If ROI is not a significant factor for them, and they are embarking on this remodeling journey for the sole purpose of loving the space they're in, we'll get on the horn and order that bidet STAT. This bathroom will now be the most luxurious, "make the Jones' keep up with US" bathroom on the block. We live for that kind of project. We dream of that kind of project.
Takeaway: At the expense of sounding like a broken record, the biggest ROI you will get from your home remodel is really the ROE; return on enjoyment.
If you start thinking of the investment into your home is the time you spend inside of it; doing homework at the dining room table, cooking meals with family during the holidays in your kitchen, relaxing on the weekends watching the game with friends in your living room, relaxing after a long week at work in your standalone tub inside your wet room shower area – if that is what you start viewing as your return, then ROI in your remodeling project will be guaranteed.
Deep Dive: ROI & Forever Homes
Compelling Homes specializes in creating forever homes. These are bespoke creations tailor-made to enhance your lifestyle and fulfill all your wants and needs. We get to know our clients deeply — their families, habits, schedules, and patterns — and design a home that will work best for them while increasing ROI.
However, because your deepest desires may differ from what the mainstream wants, ROI usually isn't the main priority in our projects. Our clients care more about creating a home that supports their lives for the next 20, 30, or even 40 years than how much they can get once it's time to sell.
Of course, this isn't the case for all homeowners. If you're planning to sell your home soon, ROI is probably one of your top priorities. And that is a-ok.
Our team is not a team of salespersons. We are a team of thinkers, innovators, dreamers, and doers. We are a team to call when you want to walk into your home and think, "finally. I'm home."
Remodeling Your Home with Compelling Homes
Though still an important consideration, we tend to be in the camp of "ROI takes a backseat to personalized design when building your dream home." Not because we do not believe cost matters – it does – but because at Compelling Homes, we are not here to tell you what to do.
When it comes to calculating ROI – it's best to talk to a professional team with years of experience and most importantly, an understanding of you. Your situation. Your home. Your life. That's what we're here for – it's what we excel at.
We're here to make your space for you; not the other way around. If you are thinking of remodeling your Des Moines Metro area home and want to work with a team who will stop at nothing to provide unique designs and high-quality construction, let's get the conversation started.
Remember: we don't do "good enough," we make your home compelling!
