The home improvement market in the US totaled a record $317 billion last year. We are being inundated with how-to’s on TV, on blogs and in magazines where regular people transform their homes with a hammer and a paint brush. But is there a way to know if the money you’re going to be spending is actually going to be a good investment? And which projects are going to give you the most bang for your buck?

Source:  Affordable Exteriors

There are a few factors at play to determine whether your intended home remodel project is going to be a good investment or not.

It’s important to first determine the intended purpose of a remodel: a property can be improved to increase its sale or rental price, or a project can be undertaken to add to the enjoyment of the home’s inhabitants.

If you want to add to your home’s value for your and your family’s personal benefit, then you will need to ensure that you stay in your home for another 5 – 7 years after the work has been completed to get the value out of your investment. If you are only measuring the financial ROI however, then money spent versus money gained is going to be the only metric to consider.

The type of projects for the different scenarios vary greatly however: a remodel-to-sell project has to take into consideration greater market appeal and trends over the needs and wants of the owner.

Biggest home improvement trends for 2017

In Remodeling’s annual Cost vs Value report, 29 of the most popular remodeling projects are compared with data collected from 99 markets in the US. The purpose of the report is to show the real cost involved in a typical remodeling project, and how much a real estate professional believes that remodel will influence the home’s selling price within 12 months from the work being done.

In such a big and varied market, there are of course multiple variables that may influence cost, not to speak of the bias of the real estate professional. Different areas also have different tax payments, permits, insurance and other costs. To make the data as accurate as possible then, real projects are compared with theoretical projects in all 99 markets surveyed, and a median national cost and value is then determined for the project.

Here are the top 10 remodelling projects for 2017 when measured on cost recouped.

• 1.Roof Insulation 107.7%
• 2.Entrance Door Replacement 90.7%
• 3.Manufactured Stone Veneer Siding 89.4%
• 4.Minor Kitchen Remodel 80.2%
• 5.Garage Door Replacement 76.9%
• 6.Vinyl Siding Replacement 76.4%
• 7.Wooden Deck Addition 71.5%
• 8.Two-story Addition 71.1%
• 9.Basement Remodel 70.0%
• 10.Family Room Addition 69.3%

What each of these remodelling projects entail, and their cost to value ratio.

#1: Roof Insulation

The only project that shows a positive return on investment, is insulating your attic. This is not only a great financial investment then, but it is also an environmentally responsible one. It is estimated that 25% of the heat generated in your home is lost through an insufficiently insulated roof which has a significant impact on the temperatures in your home, as well as your heating bill.

According to the Department of Energy, less than 11 inches of fibreglass or rock wool, or less than 8 inches of cellulose insulation in your roof cavity is not enough to prevent significant heat loss. These roofs will greatly benefit from additional insulation.

Fibreglass batts are one of the most inexpensive ways to insulate your roof, and is especially easy to install when you have an open roof space. The project cost will come in at a national average of $1,343 and will add an additional $1,446 to your home’s value. With such a small capital outlay and the value increase that is a result of that investment, it hardly makes sense not to improve your ceiling insulation.

While it is possible to do it yourself, it is best to get a trained professional to install your fibreglass insulation to ensure maximum efficiency. The roof space has to be thoroughly sealed off to create a divide between spaces that are air-conditioned in the home below, and those that are not in the roof area above.

#2: Entrance Door Replacement

Replacing your front door with a steel door at a cost of $1,413, will increase the value of your home with an average of $1,282. The existing door is replaced with a 20-gauge steel door, consisting of a door with glass panel, steel jambs and stainless steel threshold. It’s not a big job, but will add to the security of your home, as well as increase its curb appeal.

Source:  Houzz

#3 Stone Veneer

Giving your home a facelift with manufactured stone veneer will add $7,019 to the asking price, at a cost of $7,851. The trend is to replace the lower third of your existing vinyl siding with manufactured stone veneer. This adds an upmarket touch to your home, which is then reflected in the increased asking price.

Source:  HGTV

#4 Minor Kitchen Remodel

The kitchen remodel has always been a popular choice with home-owners, simply because kitchens date significantly over the lifespan of a home. Where other rooms can be remodelled quite easily with paint and furnishings, kitchens are a much bigger investment.

The minor kitchen remodel involves giving the kitchen a facelift with new cabinet fronts (the existing cabinet carcasses remain), new kitchen cabinet pulls and hardware and replacing the existing fridge and cooktop / range with energy efficient models. Outdated countertops are replaced with new composite stone or manufactured tops, and sinks and taps are also replaced with midrange models. The kitchen is then finished with new wall coverings and a resilient floor finish.

The survey has found that the minor kitchen remodel detailed above comes in at a national average cost of $20,830. Your new and improved kitchen will add $16,699 to the value of your home, meaning that 80.2% of your costs will be recouped.

#5 Garage Door Replacement

Number 5 brings us back to curb appeal again and the importance of first impressions. Replacing your garage door will cost you $1,749 and increase the sale price of your home by $1,345. The cost of the door – as well as the increased value of the home – are very small compared to the total value of the home. But when you consider the visual impact a garage door has on the front of your home, it is well worth the investment.

#6 Siding Replacement

Another way to give your home a facelift to entice prospective buyers, is by replacing old and worn siding with new, low maintenance vinyl siding. A project like this will typically cost your $14,518 and you will be able to add $11,093 to your selling price.

Source:  Better Homes & Gardens

#7 Wooden Deck Addition

This has been a popular remodel for a few years now, and for good reason: an outside deck extends your living area without massive capital outlay and if done correctly, can be a great attraction for prospective buyers. Add some built-In benches and planters while you’re busy with the construction to create that inviting outdoor room. Soft landscaping around the new deck will further add to its appeal. You can expect to pay $10,707 for a new wooden deck with steps and balustrade, and will be able to ad $7,652 to the price of your home.

#8 Two-storey addition

While it might seem that creating extra space with a two-story addition is a sound investment, the numbers show otherwise. A typical two-story addition consists of a ground floor family room, with a second floor bedroom and full en suite bathroom. It is a large undertaking that will cost you roughly $176,108, and you will only be able to add $125,222 to your asking price, resulting in a bumper $50,886 loss.

Because of the size of a project like this, there are added costs that have to be considered on top of the construction costs: the cost of an architect or designer to draw up the plans and get them approved, as well as application of the necessary construction permits and insurance. Additional air conditioning and the resulting upgrade of the plumbing and electrical systems also contribute to the costs of a larger project.

#9 Basement remodel

As with adding a second floor, the additional space created with a basement remodel and subsequent increased value of your home, doesn’t equal the money spent on the conversion. The typical basement conversion project consists of an open-plan entertainment area with wet bar and a full bathroom. The space has the ability to be used for entertaining as well as an additional guest suite. This project requires upgrades to existing air condition systems, electrical and plumbing work, as well as the cost of having the mechanical equipment that is being housed in the basement, concealed. This kind of project will cost $71,115 and will add $49,768 to the asking price of your home.

#10 Family Room Addition

The last of our top 10 is another addition that sees a $27,511 loss. By adding a single-story family room to your home, you will spend $89,566 and get to add $62,055 to your asking price. As with the previous 2 additions, the costs add up when you take into consideration all the additional work that is necessary to finish and fit out a new part of your home.

What these trends reveal about the best home improvement projects

One of the most surprising revelations coming out of the data, is that it is an external remodel that gives you the best return on your investment. By spending money on a project that improves your home’s curb appeal, you are likely to get more money back, than when you spend money on improving the interior of your home. 6 out of the top 7 projects address this first impression, which proves that American home buyers – and real estate agents - judge a home on face value.

Another trend that emerges from this data, is that smaller projects are a better investment than massive overhauls. Little projects that can be done piece by piece will give you a better return on investment that if you spend a large amount of money on a single project. The biggest spends out of the top 10 list - the two-story addition, basement remodel and family room addition – also have the lowest percentage of costs recouped.

The rest of the Remodeling report shows that while bigger projects are not yet scoring as high on cost recouped, their perceived value added to the home have increased between 5.6% and 7.4%. Those increases trump the increased cost of doing the projects and suggest that realtors rate those bigger home improvements higher than they did 5 years ago. And the reason for that, is that real estate market is still continuing to recover

The National Association of Realtors estimates the average price of an American home sold in September 2016 was $234,300, which is a 5.6% increase from the previous year. And usually, when market prices rise, so do real estate agents’ perception of the increased value a remodelling project might have.

Another big surprise coming out of the data is that the most popular remodels – bathrooms and kitchens – also offer some of the lowest cost versus value scores. Generally speaking, the simpler the remodelling project and the less skilled labour and different contractors it requires, the higher the return on investment. And as we’ve seen, exterior projects improving curb appeal on average payback of 74.9%, while interior projects only saw a return of 63.5%

Source:  Home Pros

Does the data then suggest that to remodel your home is not a sound investment?

Not exactly. The data speaks to a pure financial investment and when you look at those numbers, you will lose money on all except one improvement project. If you plan to remodel a property with the intention of selling it, you will need to consider the numbers carefully to see if your investment will pay off. Discuss your plans with your realtor and get their input into the maximum offer you can expect to receive with all of the changes you intend to make.

But home improvement is not only about increasing the value of your home. If you are not intending to sell your property any time soon, then you should consider the investment that you are making in your lifestyle and family.

Increased or upgraded living spaces could hold great benefits for you and your family. There are however a few things to keep in mind.

Ensure that you do not spend so much on your home that it becomes the most expensive property in the neighbourhood. This will have a negative influence on your asking price should you wish to sell in future. Banking on your neighbourhood improving in the next 5 to 7 years to catch up with the elevated value of your improved home, is another risky gamble that might not pay off. So, ensure that the added value of your upgrade is in line with the values of the other homes in your area.

According to a Time Money interview with Omaha, Nebraska, appraiser John Bredemeyer, a spokesman for the Appraisal Institute, you should limit your spend on remodeling to these percentages of your home’s total value:

i. Kitchen: 10% to 15%

ii. Main en-suite bathroom: 10%

iii. Guest bathroom: 5%

iv. Attic or basement conversion: 10% to 15%

v. Other rooms: 1% to 3%

vi. Patio, deck and hard landscaping: 2% - 5%

These restrictions will prevent you from overspending and pricing your home out of the market.

To make sure that your home renovation project goes as smooth as possible, follow these general rules of thumb:

1)Unless you are completely comfortable with power tools, do not attempt to do the work yourself in order to save money. Many mistakes can be avoided when you use a professional.

2)Do sufficient research before you start to contact contractors. Knowing what you’re in for, will help you to understand what the contractors are putting in their estimates, and will help you to make an informed decision when it comes to choosing the right person for the job.

3)The right contractor will save you money. By ensuring that you appoint a reputable professional, you can rest assured that all the permits, insurance and other requirements are taken care of. Trade professionals are also able to negotiate much better rates for materials.

4)Get quotes from at least 3 different companies before appointing someone. This will allow you to do a comparison and to identify omissions and cost variances.

5)When appointing a contractor, make sure that they will be taking care of all the necessary building permits and insurance for the project.

6)Remember to enquire with your local council of you require planning permission for the intended project.

Source: Shutterstock

How to determine if a remodel is the right decision for you.

Before you start on your remodeling project, it is important to determine how this remodel will add to the quality of your home life, as well as the financial impact on your day-to-day expenses. A family for examples might get greater benefit from the addition of a family room or a two-story addition that allows each child to have their own bedroom, rather than a luxury en-suite bathroom for mom and dad.

Before you make additions to your home, it is better to fix what you have first. A half-finished basement remodel is likely to do more damage to your property value than the positive influence a family room addition might have. Most potential buyers don’t want to feel like there is a lot of work to be done once they’ve purchased a property.

You should also do careful planning around your monthly expenses to determine whether you will be able to afford the additional mortgage payment once the work has been completed. If you are already just making ends meet, or you have significant amounts of consumer and mortgage debt, rather put off the project until you can comfortably afford it.

There are always additional costs

It is not only the estimated construction costs that should be taken into account either: traditionally, most building project run over time as well as over budget by an average of 15% so you will need to have a contingency in place. Contractors are also not always able to predict what will happen when they start to modify building structures or what they will find once they open walls and roofs, so it is best to be financially prepared for any eventualities that may occur.

Often with major remodelling of older homes, your local building department might require that you bring the entire house up to current building code standards. This could have a massive financial impact on your project, especially if both electrical and plumbing upgrades are required. It is therefore extremely important to check all requirements with your local building department before starting the work.

The added value to your home will also have an effect on your property taxes, and likely your insurance as well. These additional expenses need to be budgeted for when you are planning how you will cover the cost of the project.

When considering a remodeling project, all of the financial implications should be weighed up against the value and enjoyment benefits the remodel will have on your family and lifestyle. Only then will you be able to determine whether a project will have the return on investment that you expect.