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How to calculate the ROI of your home improvement project

Image for article titled How To Decide If A Home Renovation Is Worth The Cost

photo: Ronstik (Shutterstock)

Owning a home is more than just owning a shelter—it’s about managing a home investments. A home or condo is often your greatest asset. Instead of just enjoying it, you have to constantly worry about improving it in hopes that one day you can sell it for a lot more than what you paid for.

It’s like the moment you bought your home you started making radical changes to it – adding or renovating a bathroom, finishing the basement, or updating the kitchen. Whenever you hesitate to think about how expensive these renovations are going to be, someone inevitably tells you that it will add to the overall value of your home (because nobody remains in a house for longer – the average homeowner will only linger between eight and 13 yearson average before moving again).

but how much Does your renovation add value to your home? What is the return on investment (ROI) of a renovated kitchen, bathroom or other project? Here’s how to find out.

A note on style

Before we get to the numbers, one thing to consider here is personal taste. A home is a personal space, and your ideal kitchen might not be someone else’s. A kitchen built to your personal taste can leave you feeling all warm and fuzzy inside, but someone looking to buy your home might consider this a renovation reduced the value of your home because they have to spend extra money to remove it. When you think about the future return on your investment, turn down the personalization and creativity and play it safe.

What is the ROI?

In a sense, ROI is a simple equation: divide return by cost. If you spend $20,000 on a kitchen remodel and end up selling the house for $15,000 more, you just got a decent 75 percent ROI. Congratulations! Yes, it’s true — the ROI on renovations is almost always below 100 percent, which means you’re not really getting your money back. The average ROI on home renovations is about 70 percent– a reason for it Many people lose money trying to flip a house.

Still, a renovation can make your home easier to sell, sell faster, and improve your quality of life while you live there. The trick is to estimate your ROI before deciding which renovations are worth your time.

To find out, you need to know what kind of return you can expect when you sell your home. A good start is Annual Cost vs. Value Report from Remodeling Magazine, which takes data from remodeling projects across the country and calculates the typical ROI for different projects. You can look up different projects specific to your region or you can look at national averages. These numbers may not be 100 percent accurate for your project, but they give you a good idea of ​​how much money different renovations will bring back. For example, a medium-sized kitchen renovation yields an average ROI of 71 percent, while the return on investment for a large kitchen renovation is only about 53 percent. Using this data gives you a starting point to figure out what the ROI could be for your specific project.

sweat capital

One thing to keep in mind is that data like this usually assumes you are using a contractor on your project and therefore includes labor costs. Sweat Equity is “free” in monetary terms, so a kitchen remodel that costs someone else $30,000 and sets them back $20,000 might only cost you $15,000 because you’re not paying for labor; suddenly your ROI is much higher. On the other hand, if you do your renovation yourself, you may not finish it at a professional level and your ROI could decrease as a result.

You can never calculate the ROI of a renovation with absolute certainty. The housing market changes, and your design choices (and the wants and priorities of the home seekers in your area) can change that math at any time. But starting with some real numbers can at least help you make a couple of educated guesses that will get you pretty close.

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