Can Home Improvement Projects Pay Off?

If you’re remodeling or making home improvements, you’ll make a lot of decisions: choosing colors and patterns, hiring the right contractors, selecting new appliances. But here’s the first decision you need make, and carefully: how much to spend on the project. 

Remodeling projects can be very expensive -- a typical kitchen remodel runs between $12,558 and $33,307, according to HomeAdvisor.com. When setting a budget, it’s important to consider what return – if any -- you can expect on your investment.

Will the project reduce your utility bills, or make your home easier to sell, or allow you to command a higher selling price? Improvements which make your home more energy efficient, like an upgrade to energy-saving appliances, can pay for themselves in time. But many remodeling projects are likely to be “sunk costs.” While they may add to your enjoyment of your home, you won’t recoup the expenditure when you sell the house.

Impact of Home Improvements on Resale Value

Remodeling projects that reflect your personal taste – like new paint, wallpaper and carpeting – won’t boost your home’s resale value, because prospective buyers likely won’t share your taste. Ditto with adding a pool. Some homebuyers want a home with a pool, but just as many have a strong preference for a home without one. Similarly, any improvement that reduces the number of bedrooms in a home usually won’t pay off, because you’ll have fewer bedrooms when you advertise your home for sale.

Home projects most likely to pay off include: vinyl, fiber-cement, and foam backed vinyl siding; window replacements and kitchen renovations.  (Remodeling Magazine’s annual Cost vs. Value Report identifies remodeling projects that deliver the best – and the worst – bang for the buck. See this year’s results here.)

Other Factors to Consider

Are you remodeling a kitchen or bathroom that’s in poor shape, or one that’s recent and in good shape?  Replacing a kitchen with obsolete appliances and out-of-date décor is more likely to pay off than a project that changes out a perfectly good kitchen just to create a new look you like.

Also, consider the cost of the project relative to the overall value of your home. The Appraisal Institute recommends spending no more than the equivalent of 10 – 15 percent of the home’s value on a kitchen remodel or 10 percent on a master bedroom suite. 

It’s fine to spend money on remodeling projects that don’t pay off -- if the cost is within your budget, you plan to stay in your home for a long time, and you’re not counting on recouping your investment.