Home improvements can add to the beauty, functionality and resale value of your home. But the reality is that not every upgrade will deliver a solid return on investment. In fact, some projects — such as sparkling bathroom overhauls and expensive basement renovations — don’t even give homeowners their money back when it comes time to sell the house. That’s why it’s important to focus on upgrades that are likely to provide a return on your investment, according to experts.
That means avoiding costly “luxury” options that won’t appeal to many buyers. And it’s a good idea to keep an eye on what similar homes in your neighborhood are selling for, so you don’t overbuild.
If you are thinking about tackling a large-scale project, talk to a real estate agent in your area about what projects have boosted home values in the past and which ones might not. Local trends can help you determine which renovations might be a good fit for your home and neighborhood, says Sophia Bera Daigle, CEO of Gen Y Planning, a financial planning firm for millennials. You should also make sure to include a 10-15% buffer in your budget estimates, she says.
Another tip is to work with contractors who can offer a clear plan and realistic timelines. You should get an estimate upfront and sign a contract with as much detail as possible (such as the estimated cost, payment schedule, start date and finish date, and specific details like types of materials and brands). If you have concerns about the contractor’s reliability, consider asking for references from other homeowners who have worked with them.
You should also think twice before spending more than you can afford to pay back. If you take out a credit card to finance your renovation, for example, you’ll pay high interest rates, and outstanding debt can damage your creditworthiness. It’s better to save up for a renovation or seek out other loan options.
A new coat of paint is inexpensive, but it can make a big difference to the look and feel of your home. So can replacing old kitchen and bathroom fixtures with more modern models. And don’t forget to update window treatments and hardware, which can also be cheap and easy ways to refresh your space.
In addition to boosting your home’s appeal, some home improvement projects can have tax benefits when it comes time to sell. For instance, energy-saving upgrades often have a quick payback and may qualify you for tax credits when you sell the house. Other capital improvements, such as adding a porch or upgrading your roof, can be added to the cost basis of the home and deducted from the sales price when you eventually sell, which can help reduce your taxable gain. However, some repairs, such as repairing leaky gutters or replacing worn carpeting, are not tax deductible. If you’re unsure which repairs are eligible for a deduction, consult your tax advisor.