These home renovations provide the biggest returns

Real Estate

A home improvement contractor works on a house in Cambridge, Massachusetts.

Suzanne Kreiter | The Boston Globe | Getty Images

Americans are moving much less frequently. Mobility is actually at a record low. That is fueling strong growth in the home remodeling market.

But not all renovation investments yield equal payback.

Overall remodeling returns are shrinking. The cost-to-value ratio for 2020 stands at 63.7%, down from last year and below the last decade’s high of just over 71%, according to an annual report from Remodeling Magazine. That is because the costs to do the project are rising–mostly labor and material costs.

“The cost part of it is working against us, but the values are down as well,” said Clayton DeKorne, editor-in-chief of Remodeling Magazine.

While home value gains are accelerating on the lowest end of the market, where demand is strongest and supply is leanest, value gains in the move-up market are slowing.

So which particular project yields the best return in resale value? Exterior improvements. Nine out of the top ten leading investments are outside.

Manufactured stone veneer leads all renovations with a nearly 96% return on investment in re-sale value. A garage door will pay you back 94.5%. A mid-level kitchen remodel rounded out the top three, but with just a 78% return, and bathrooms didn’t even make the top ten. Homeowners will get a better return from window replacements, new decking, a new front door and upgraded siding.

It’s all about the curb appeal.

“I do think there is a whole psychology about that first impression, that you think this is a well-put-together house,” said DeKorne. “From a remodeling standpoint, it’s mostly aesthetics, although it is a lot about protecting your home from water. Am I going to have mold? Am I going to have rot?”

While kitchen and bathroom remodels tend to be more popular, they also tend to be more personal from an aesthetics standpoint, and that can hurt in the resale value. A homeowner may put in what he or she thinks is a gorgeous new kitchen, with high-end appliances and finishings, but it may not be a particular buyer’s style. The idea of ripping out all that new work is a turn-off.

Returns also vary by region. In the Remodeling Magazine report, the average regional payback for the 22 projects it surveyed range from a high of 132% for a garage door replacement to a low of 40% for an upscale master suite addition in the same region.

Kitchen remodels, however, are more valuable in the Midwest. Much of the variation has to do with home value differences and building costs in different parts of the nation.

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