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How To Calculate ROI on Home Improvements
According to our ROI report, 77% of buyers want move-in ready homes, so when you go to sell, you will want to make updates. The issue is knowing what home improvements to make to get the most money back. Before you start knocking down walls or replacing appliances, it is important to know what ROI is and how to calculate return on home improvements.
What is ROI?
ROI stands for return on investment and is used in various scenarios. It refers to the profit made on a particular investment after the costs are removed. In home improvement, ROI refers specifically to the added value of a home improvement project when a home sells. The higher the ROI, the better the investment.
How Do You Calculate ROI on Home Improvements?
Calculating ROI on home improvements requires knowing three things: the as-is price before making the updates, the sold price after the updates, and the project cost of the home improvements. Once you have these numbers, the ROI formula can be broken down into two easy steps.
First, you need to find the increase in sales prices from the home improvements. You can do this with some simple subtraction.
After you have the monetary increase in sales price, you need to account for the cost of completing the project to find the home improvement ROI.
In the end, you will get an ROI percentage that shows the profit compared to the cost. An ROI below 100% means you lost money, and an ROI above 100% means you made money. An ROI of 100% means you broke even.
Let’s look at an example. In one of our recent home improvement projects, the as-is price was estimated to be $650,000, and the home sold for $850,000 after the updates. The project cost was $48,220.
When you calculate the return on investment of these home improvements, you get almost 315%.
How to Calculate an Estimated ROI for Home Updates
Trying to calculate the ROI for renovations or other home improvement projects that have yet to be done can be more challenging. You should calculate an estimated ROI to ensure the investment will be worth it before you start the project, but the numbers will not be exact.
Determining how much a project will increase the sales price of your home can be especially difficult. Looking at how much homes in your area sell for with and without these features can get you a better understanding of home much value they bring to the table. You should also consult with your real estate agent who should have more knowledge on the topic.
A quote can give you an estimation of project costs to calculate the ROI of home improvements, but be careful. If you are working with a typical general home contractor, you may want to increase this number a bit to give yourself a cushion for delays or issues. At Curbio, our fixed price proposal means price changes are not an issue.
What Factors Impact Home Improvement ROI?
Home improvement ROIs are not consistent, and every homeowner can have a different experience. If you are thinking of making updates to your home before selling, you need to start calculating the expected ROI on home improvements for your specific situation. The exact return on investment for home improvements will depend on various factors such as:
- Projects/Updates– The specific home improvement projects completed will play a major role in the return on investment of a home. Some projects will result in little value back while others can have a major return.
- Cost of the Project– Higher project costs can eat away at the money that goes back into your pocket, but sometimes a bigger investment will have a bigger return. Just make sure that the project’s costs are below the expected increase in sales price.
- Location/Market– Where your home is located can have a major impact on the return on your investment. In some markets, buyers are looking for specific updates, and homes that make them will see a higher return. On the other hand, homes that make less desirable updates for their market may see a lower return. For example, adding a pool before selling in a cold-weather state may not have a great return.
- The House– The house itself can also play a role in the ROI on renovations and other updates. Homes that make updates to be move-in ready will see the greatest return. On the other hand, homes that make some updates but still need work may not see a great return.
- The Buyer– Beauty is in the eye of the beholder. Updates that appeal to the majority of buyers will put your home in a good spot, but buyers have unique wish lists. If your home happens to hit the mark for a specific buyer, you could see a higher offer.
Now that you know how to calculate the ROI of home improvements, you are one step closer to making your optimum profit when you sell. At Curbio, we help make these dreams a reality. Our focus on smart home improvements can lead to a higher return on investment for homeowners. The best part is, there is no money due upfont. Talk to your real estate agent about partnering with us or contact us today.