The Cost of Remodeling - What Pays Back the Most?

Shows like HGTV's Love it Or List It depict all of the merits of remodeling, especially when it comes to increasing the value of your home.

While it is true that the cost of remodeling has dropped 10-15% in the past 5 years, be careful.  In almost all cases, the amount of money that you will invest in a remodeling situation will be greater than the amount of value it will add to your home when you plan on selling it.

Take a look at Remodeling Magazine's figures.  Back in 2005, homesellers earned back, on average, 82.5% of the money spent on renovation projects.

In 2011-2012, however, it has greatly diminished to a mere 57.7% on average.

So what does this mean?  Are renovations not worth it?

Actually, no, it isn't quite that simple.  As with just about anything in life, the real answer is "it depends."  And it depends on your intentions - why are you remodeling?

What you should gather from this information is that you most likely don't want to undergo massive renovations for your home, exclusively on the hope that it will sell better.  Instead, renovate your home so that YOU can enjoy it first, and look forward to reaping some of the benefits of a higher sell-price further down the line.

However, if you're looking to sell immediately and your kitchen appliances or bathrooms are extremely out of date, it may be good to renovate exclusively for the purpose of selling your home.  Tackling one of those tasks will increase your target audience by reducing potential buyers objections to the property at large, leading to a shorter market time.  Of course, home pricing fixes everything, but that's a conversation for another time.

If home renovations are a next negative on home values, why do we se so many "Home Flippers"?

Great question - thanks for asking.  Home flipping is a special case.  Those who make a living flipping homes start by buying a property with a very limited audience of buyers, and as a result, very little market value.  Because they can get in cheap, if they can do an overhaul with limited expense, they have a great opportunity to realize a great gain.  Additionally, they have experience with home projects, playing their own "general contractor" (saving a major cost of labor) and buy directly, frequently enough to save money on materials.   In all, they see the greatest percentage gain in value while keeping their costs as low as possible.

Now the big question: what home renovation projects provide the most pay back?  

Here are 9 projects that are predicted to give you the most money back in the long run, courtesy of MSN real estate.

1. Replace the exterior siding

Siding typically pays back 78% (based on the average $13,461 cost).  Go with upscale fiber cement, if you can.  New siding not only gives your home better curb appeal, it greatly ups the integrity of the house.

2. Replace the entry door

If you go with a midlevel 20-gauge steel door valued at around $1,238, it will pay back around 73%.  Entry doors also vastly improve curb appeal.

3. Turn an attic into a bedroom

This usually involves removing a dormer for a bathroom with a shower, along with insulating/finishing the walls and ceiling, adding some windows, extending the heating and a/c vents, and bringing up lighting and wiring.  It isn't a cheap project, usually costing around $50,000, but you will gain back around 72.5% of your expenses.  More living space is high in demand for buyers, so this can easily increase the value of your home.

4. Minor kitchen remodel

A typical kitchen remodel, including new countertops, sink, and appliances, sits in the $19,500 range, and will pay back around 72.1%.  Note that this does NOT include the floor or the cabinetry, but only the major, most functional devices.  This is more than just a face lift, but improves the overall function of the space.

5. Replace the garage door

This isn't a project that many think about considering unless its needed.  Know, however, that replacing a garage door at around $1,512 gets you a 71.9% return, and additionally adds curb appeal.  if you replace it with a higher-end door, say $2,994, you will earn back about 71.1%.

6. Install a new deck

If you add a new deck to the space, typically around $10,350, it will earn back 70.1%, on average.  This can also give your home curb appeal if it is added to the front of the home.

7. Foam-backed vinyl siding replacement

This siding keeps the home warm and pays back around 69.9% of the $14,274 cost.  Know that this average project covers around 1,250 square feet of siding (plus trim).

8. Midrange vinyl siding replacement

This mostly updates the overall look of the home at around $11,729, and will earn back 69.5%

9. Vinyl replacement windows

The replacement payback value is around 69.1% of $14,328, when replacing 10 double-hung 3-b-5 windows.  This type of window uses low-emissivity glass and are insulated with simulated wood-grain trim.