For most of us, our home isn’t simply a place to live – it’s our largest investment. However, when it’s time to remodel or improve our homes, knowing which projects will yield the best bang for our buck can be complicated and ambiguous. What’s worse, there are some significantly expensive projects that may not provide any financial benefits at all, raising the stakes of decision making.
At Realm, we’ve made it our mission to use data and insights to help homeowners analyze the smartest home improvement strategy for their financial goals, whether that’s improving the structure itself, capturing potential rental income, or simply getting more enjoyment from living there. So what are some of the insights we’ve gained from crunching all this data? Here are four of the smartest options we’ve identified that will give homeowners the most return for their home improvement dollar.
#1: Home Additions
Home additions immediately increase the value of your property by increasing the livable square footage of a home. Adding bedrooms, bathrooms, or even a second story are all popular options, especially in Southern California where spending on additions to a current home can be far more affordable than trading-up to a larger one.
The key to increasing the ROI of a home addition is evaluating the property relative to others in the neighborhood. Realm’s appraisal partners always recommend looking at comparable properties in the neighborhood to understand what types of homes are most attractive to buyers.
For example, if you live in a home with 2 bedrooms, but most similar-sized homes in your neighborhood have 3 bedrooms, your property could be passed over or undervalued by potential buyers since there’s lower perceived value and usability. In this case, a bedroom addition can give a major boost to your home’s value. If you’re curious about your property’s value potential from an addition, you can calculate that along with other top-ranking addition strategies by creating a free Realm account.
#2: Accessory Dwelling Units
Now allowed on single and multi-family properties throughout California, ADUs are one of the top ROI projects that CA homeowners can pursue. Detached backyard homes, which can be utilized for extra living space or as separate rental units, offer the most value. Home appraisers generally assign the value of ADUs per square foot at 75% of the main home’s cost per square foot.
In addition to the immediate 75% ROI from building this additional livable space on your property, you can generate rental profits each month, quickly turning your ADU into a lucrative investment. Most Realm customers in high-rent areas of Southern California are able to break even on their construction costs in only 5 years, enjoying high-margin rental profits year over year after that point.
Just remember, if you’re looking to build a positive cash flow rental unit on your property, construction quality does matter. Invest in the design and amenities that will attract quality renters in your area (think one or more full bedrooms, washer/dryer, dishwasher) but don’t overspend on luxurious fixtures and finishes that will quickly show wear and tear from tenant usage. For more advice on your property’s ADU potential and how to appropriately spend on an ADU, create your Realm account to get started.
#3: Convert underutilized space into a bathroom
Similar to a home addition, converting an existing space of your home into a bathroom can be a major value-add to your home, especially if it currently lacks bathrooms relative to comparable homes in your area. An example is a home that has just one or two bathrooms in an area where larger single-family homes are common. Adding a bathroom immediately makes your home appealing to a whole new set of buyers, including families.
When deciding where to add a bathroom, remember a few key principles:
- Small is okay — a half bath can comfortably fit in just 25 square feet (plus, small bathrooms and half bathrooms often provide the best return for the cost).
- Utilize spaces that already have existing plumbing and electrical connections or are near your plumbing systems (think laundry rooms or garages). You can even get creative with spaces like under-staircase storage areas, closets, or even splitting one large bathroom into two smaller ones.
#4: Cosmetic kitchen improvements
Kitchen remodeling is one of the most popular renovation projects, and for good reason — the kitchen is where we spend a lot of time not just cooking but entertaining as well. A fresh, modern kitchen can also increase the appeal of your home to potential buyers. That said, kitchen remodeling can be quite expensive, with full “rip and replace” remodels including new cabinets and appliances often topping $50,000, with just half of that money being recouped in your home’s value.
In short, luxurious renovations are great for personal enjoyment, but they shouldn’t be viewed as a sound investment in your home’s value. That’s why Realm recommends cosmetic kitchen improvements to homeowners who are looking to optimize their home value investment returns, rather than building the chef’s kitchen of their dreams.
Sonja Trancoso, a certified residential appraiser since 2002 and the owner of Hillside Appraisal, says, “When selling a home, it rarely makes sense to overspend on completely gutting a kitchen. Selecting new handles for cabinetry, appliances, flooring, and countertops will make your kitchen more appealing without overspending, and allows the new owner to make minor changes like repainting cabinets to add their own personal touches.”
Here are some tips for kitchen remodeling:
- Utilize the existing layout of your kitchen and the existing plumbing and electrical locations so you don’t need to spend on high-cost structural and relocation work
- Refinish cabinets instead of replacing them
- Repaint the kitchen or add new wallpaper with a more modern color palette to breathe new life into an older kitchen
- Replace dated lighting with more modern, decorative fixtures
- Replace old plumbing fixtures with more contemporary ones
- Selectively update appliances
With four different options for maximizing your home’s value, where will you start? There are benefits you can enjoy right now from more space and more beauty, but there are also financial considerations to keep in mind. Realm makes the decision process hassle-free — just type in your home address and get an instant decision break-down. Create your Realm account today by signing up HERE.