Renovating a home for resale — costs and ROI

As the graphic shows, different rooms carry widely varying average renovation costs. As a general rule, renovations typically cost $15 to $60 per square foot, and rooms with running water are much more expensive than their “dry” counterparts.^Footnote3

Of course, any critical or structural repairs that are needed have to take precedence, as they will either prevent the home from passing inspection, be a red flag to potential buyers or both. When improving the quality of the homeowner’s daily life is the end goal for renovations, the living room and primary bedroom — two of the least expensive renovations — are two of the most impactful rooms to renovate. And the kitchen, though one of the most expensive, is also impactful and tends to be pivotal in making a home more appealing to potential buyers. But when the goal is to increase the resale value in the short term, the renovations with the highest ROI are the ones that boost the home’s curb appeal.

When a homeowner intends to stay in a home for years, a renovation with an ROI of, say, 70% is a sound investment because they will be able to enjoy the upgrade themselves for a long time before putting the house up for sale, and may still have increased the home’s value. But if the homeowner plans to put the house up for sale as soon as the renovations are done — or relatively quickly thereafter — it’s best to stick with renovations with an ROI close to or above 100%. And that’s where curb appeal is key.

The top 10 renovation projects for ROI are not complete room remodels but rather more focused projects with a limited scope. The top renovation project is garage door replacement, which has an average cost of $4,513 and an average value at resale of $8,751, for a whopping expected ROI of around 194%. The second best renovation project is entry door replacement, with an average cost of $2,355 and an average value at resale of $4,430, a 188% ROI. The third best is replacing siding with stone veneer, which costs an average of $11,287 and has an average value at resale of $17,291, a 153% ROI.^Footnote2

The garage door, the entry door and the house siding. The first impression as you drive or walk up to a home, or the first pictures you see on a homebuying website or MLS. It’s abundantly clear that, if putting your renovation eggs in one basket, focusing on curb appeal is the smartest financial option.

Typically, a home equity line of credit, or HELOC, is a preferred way to fund home renovations for home improvement when the homeowner intends to stay in the house for the foreseeable future. But is it also a sound way to fund home renovations when the homeowner intends to sell immediately after? The short answer is: yes, but with one notable exception.

A HELOC is a secured loan, secured against the value of the home. So, if the home is sold, the HELOC must be repaid immediately. The HELOC is typically paid off from the proceeds of the sale of the home during closing — after the primary mortgage is paid off. Homeowners should keep in mind that, if they do have to pay off a HELOC with proceeds from the sale of their home, they will have less cash on hand for the down payment on the home they’re purchasing.^Footnote4

The exception in which a HELOC is not a feasible way to finance renovations before a sale is when the homeowner owes more than the home is worth — known as negative equity or being underwater. In this instance, the homeowner would not be able to secure a HELOC since approval is contingent on the amount of equity in the home. In that case, the homeowner would have to use cash to finance the renovations or sell the home as-is with minor cosmetic upgrades, avoiding a situation where overwhelming debt is created.^Footnote4

This article deals in broad generalities, but individual situations require some critical thinking to ensure the right renovation path is chosen.

For instance, even if the ROI is above 100%, a series of renovations that turn a home into the most expensive home on the block can be counterproductive, making the home a harder sell. In some climates, installing an inground pool boosts the home’s curb appeal and resale value, and in other climates, a pool can actually lower the resale value because the cost of upkeep vs. the amount of time the pool can be enjoyed are considered disproportionate.

Above all else, when it comes to the scope of renovations with the best ROI, bigger is not always better, and curb appeal is king.