Homeowners are opting to stay in their homes longer. The expected tenure currently sits at a median of 15 years, up 25% from just three years ago, according to data from the National Association of Realtors.
Since people are foregoing a new home purchase for a while, it often makes sense to improve their existing one. It helps to run the numbers and figure out which home improvement projects will be worth their time and money, especially when they eventually decide to sell.
This article will highlight the projects that provide the lowest return on investment, plus explain the benefits of home improvement and how to finance a project.
The benefits of improving your home
Making improvements to your home has several benefits, one of which is increasing your home’s value. If you’re updating your home with features that buyers desire, you could see an increase in the value and list price.
An increase in your home’s value also means a boost in equity. As your home’s value increases and your mortgage balance decreases, you build more equity. A jump in your home’s value from home improvements further increases your equity.
The more equity you have, the closer you’ll be to getting rid of private mortgage insurance if you must pay for it currently. Once your loan-to-value ratio reaches 80%, you’re eligible to have your PMI payments removed, though fair warning: This may involve another home appraisal.
5 worst improvements for the money
Not all home improvements provide you with a good return on investment. These are the five worst projects for the money, according to Remodeling magazine’s 2019 Cost vs. Value Report.
Upscale major kitchen remodel
The average upscale major kitchen remodel costs $131,510 and has a resale value of $78,524, Remodeling magazine found. Based on these numbers, only 59.7% of the cost is recovered.
Some of the features of an upscale kitchen remodel might include adding in stone countertops or a high-end undermount sink with designer faucets.
Midrange master suite addition
A midrange master suite addition is $130,986 on average, has a $77,785 resale value and thus recoups 59.4% of its cost, according to Remodeling magazine.
The suite is described as 24-by-16 feet with a walk-in closet.
Upscale bathroom addition
The average upscale bathroom costs $87,704 and has a $51,000 resale value, according to Remodeling magazine. The project recovers 58.1% of its price tag.
Remodeling describes the job as adding a new master bathroom to the existing master bedroom. The addition might also include a freestanding soaker tub with high-end faucets, a double-vanity with a stone countertop, a separate toilet area, ceramic floor tiles and in-floor heating.
Midrange backyard patio
Adding a midrange backyard patio to costs $56,906 on average, according to Remodeling magazine. The resale value is $31,430 and just 55.2% of the job cost is recovered.
Remodeling magazine describes the midrange job as a flagstone patio with a gas-powered fire pit, four all-weather deck chairs, a stone veneer modular kitchen unit, a cedar pergola with low-voltage lights and underground electric and gas connections.
Upscale master suite addition
You’ll barely recoup half of your money for an upscale master suite addition to your home — 50.4% to be exact, according to Remodeling magazine. The job costs $271,470 on average but has a resale value of only $136,820.
The 32-by-20 foot upscale suite might include a sitting area; a large master bathroom; custom bookcases and built-in storage; a high-end gas fireplace with stone hearth and a custom mantle and a walk-in closet.
How to finance home improvement projects
There are several options for financing a home improvement project.
Home equity loan
A home equity loan is a financial product that allows you to borrow against your equity in a lump sum. It’s an installment loan that often comes with a fixed interest rate and fixed monthly payment. A home equity loan might suit you if you know the exact amount of money you’ll need for a home improvement project.
Home equity line of credit
A HELOC, or home equity line of credit, is a revolving credit line that works much like a credit card. You borrow against your equity but instead of taking out a lump sum, you have a credit line with a specified limit and only make payments based on the amount of credit you use, plus interest.
If you have an ongoing home improvement project with unpredictable costs, it might make sense for you to borrow a HELOC.
The contractor you choose might offer the option for you to finance your project through a third-party lender they have an existing relationship with. Your loan term could last up to 12 years and might include an interest-free period to incentivize you to repay the loan more quickly and avoid backdated interest charges.
The bottom line
Home improvement projects are generally meant to give your home more appeal, and improve its functionality while also adding value. Before you dedicate any time and money to a project, be sure you’re clear on the costs and are able to recover as much of your investment as possible through an increase in your home’s value or sales price.
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