Well, we aren’t talking about French kings. Neither are we discussing the Republic of Ireland.
Real estate professionals LOVE to throw around acronyms. One that particularly makes their eyes sparkle with glee is ROI: Return on Investment. Let’s take a look at what this term means when we are talking about real estate.
Fundamentally, ROI is “Bang for the Buck”. In other words, ROI refers to how much money you can get back when you sell your home after you invest money in improving it.
A lot of people mistakenly believe that if they put in a $40,000 in-ground pool, they can immediately turn around and ask $40,000 more for their house. Or, if they insist on a $20,000 upgrade to their kitchen with all high end finishes, that they will make that money back 100% or more. Unfortunately, the market does not work that way.
In reality, most improvements you make to your home will make your house much more marketable, easier to attract attention, and ultimately faster to sell; BUT, how much you sell it for after improving it really depends on how and what you spend your money on, where you live, and what year it is. Some improvements will reap over 100% in ROI, while others will see less than a 50% return.
There is a fantastically helpful website that tracks trends in home improvement across the country year to year. They put out a “Cost vs Value” report annually that breaks down, by region, how specific home improvements affect home values. They even track if specific improvements are trending up or down.
For example, in the 2020 report, just replacing a garage door can vary from region to region. In the East North Central Region (where Indiana sits) in 2020, the average cost of replacing a garage door has been $3727, which is slightly higher than the national average of $3695. It is estimated that this improvement will recoup at a rate of 79.1% in the East North Central region. In the neighboring East South Central region (where Kentucky sits), where the garage door replacement is slightly cheaper at $3543, the recoupment rate is 132.7%! And that is just for 2020.
If we go back to 2019, we really start to see how much things change year to year, region to region. In 2019, the same garage door replacement in the East North Central Region cost $3642 and recouped at 95.2%. In the South Central Region, that $3536 garage door replacement recouped at a rate of 94.2% in 2019.
This is just one example. If you look at the report, improvements from bath remodels, to window replacements and various additions are included in the reports to provide you with information to help guide your decision making.
The disparities in cost versus value certainly do not mean to not improve your home. Home improvements are usually a good idea, but you need to be realistic and strategic about why, when, and how you make the improvements. This data suggests to plan improvements to your home so that YOU can enjoy the fruits of your labor and appreciate the house more while you are still in it. If you are smart about the improvements you make, this will help the resale value of your home regardless of when you sell it. If you make no upgrades at all, that can have a seriously negative impact on your asking price and on how long it sits on the market, which ultimately costs you money.
For those of you who fantasize about flipping a home at some point and making a profit, this ROI data plays an integral role in calculating which houses to buy based on what improvements need to be made and how those improvements will affect your bottom line.
Always talk to your favorite F.C. Tucker Emge REALTOR® about major home improvements. Remember your agent is the expert when it comes to the local market and what is affecting home values in your specific neighborhood and price-range. Not only can they advise you on what trends buyers are looking for in your current market, but they can recommend verified professionals who can do the work correctly.
