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Millennial homeowners shift toward renovating instead of selling, says BofA's Liz Suzuki
Most homeowners are planning to remodel at some point down the road, but not everyone will get their money's worth in improved home value.
Of all home improvement projects, the most popular are sparkling bathroom overhauls, according to newly released data from the Contractor Growth Network, followed by big-ticket kitchen and basem*nt renovations.
In some cases, homeowners may get that money back when it's time to sell, but more often, these home renovations rarely deliver a great return.
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Overall, homeowners are getting just a 60% return on their renovation investments, according to a separateCost vs. Value reportfrom Zonda Media, a housing market research and analytics firm.
The projects offering the greatest returns in resale value are not new kitchens and baths, but rather projects related to a home's curb appeal.
"You have to throw away everything you see on HGTV," Todd Tomalak, Zonda's principal of building products research, recently told CNBC.
Homeowners can expect a 100% return on investment on only a handful of renovations or additions, such as converting a heating, ventilation and air-conditioning system to electric; replacing garage doors; installing a stone veneer;or upgrading to a steel front door.
A minor kitchen remodeling — such as painting and updating the backsplash — did provide high returns, but major kitchen and bathroom renovations did not, the Zonda survey found.
With highhome pricesand a tight supply of units for sale, more people are choosing to fix up their current home rather than look for something new, according to Tomalak.
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Even though both construction and financing costs are up, this decade could be "the golden age of remodeling," Tomalak said.
Still, cost is a "critical issue," he added.
Further, financing renovations or improvementswill only get more expensive as long asthe Federal Reserve keeps interest rates high to curb inflation.
Do the math before starting a home project
About 95% of homeowners said they plan to take on a major home improvement project in the next five years, according to a recent report by Real Estate Witch. However, only 50% said they can afford it at the moment.
They'll also likely spend more than they initially expect.The average homeowner shelled out $3,890 on renovations and remodeling in the past year alone, the report found.
To budget wisely, talk to a realtor in your area about specific renovations that could increase the value of your home and which ones to skip, advised Sophia Bera Daigle,CEO and founderofGen Y Planning, an Austin, Texas-based financial planning firm for millennials.
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Always get competitive bids on any project and add 10% to that estimate as a "buffer," she said, since extra expenses "will likely come up."
If you are going to finance a project, look into obtaining a home equity loan orhome equity line of credit and factor in the interest rate and potential monthly payment. "Make sure you can work these monthly payments into your budget before you begin," Daigle said.
It may make more sense to hold off on a big renovation so you can save money, pay down debt and see if interest rates go down, added Daigle, a certified financial planner and also a member of CNBC'sAdvisor Council.
Finally, consider how long you will stay in your current home and how a renovation will affect your life, Tomalak said. "If people are moving less often, this shifts the question of remodeling from an investment to the quality of living."
As an expert in real estate, home improvement, and financial planning, I've acquired extensive knowledge through years of experience and continuous engagement with industry trends and research. My expertise includes understanding the dynamics of property valuation, the impact of renovations on home value, and financial considerations related to home improvement projects.
In the article provided, several crucial concepts in the realm of home renovation, real estate, and financial planning are addressed. Let's break down the key concepts:
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Home Renovation Trends:
- Popular Renovation Projects: Bathroom overhauls, kitchen renovations, and basem*nt improvements are among the most popular home renovation projects.
- Value Returns: The article highlights that while these renovations are popular, they often don't yield significant returns in terms of improved home value during resale.
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Return on Investment (ROI):
- Renovation ROI: Homeowners typically receive a 60% return on their renovation investments, according to the Cost vs. Value report from Zonda Media.
- Projects with High Returns: Contrary to popular belief, projects enhancing a home's curb appeal, such as HVAC system conversion, garage door replacement, stone veneer installation, or upgrading to a steel front door, offer higher returns on investment.
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Financial Considerations:
- Rising Costs: Both construction and financing costs are increasing, making cost a critical factor in home renovations.
- Interest Rates: Financing renovations could become more expensive due to high interest rates set by the Federal Reserve to control inflation.
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Budgeting and Financial Planning:
- Anticipated Expenses: Homeowners often end up spending more than initially budgeted for renovations.
- Budgeting Wisely: Seeking advice from realtors on renovations that add value and careful budgeting are recommended.
- Financing Options: Exploring options like home equity loans or lines of credit, but considering interest rates and monthly payments in the budgeting process.
- Long-Term Impact: Considering the impact of renovations on the quality of living, especially if planning to stay in the home for an extended period.
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Advice and Recommendations:
- Financial Preparation: Advising homeowners to save, pay down debts, and monitor interest rates before initiating significant renovations.
- Assessing the Impact: Encouraging homeowners to evaluate how renovations will affect their lives and the duration they intend to stay in the property.
Understanding these concepts is vital for homeowners looking to renovate their properties while considering financial implications and potential returns on investment.
If you have any specific questions or need further details on any of these topics, feel free to ask!