Home Improvement ROI Guide | Pennymac

Key Points:

The highest-ROI home improvements aren’t always the largest or most expensive projects
Local market conditions and buyer preferences can influence how much value a renovation adds
Some renovations may increase home equity, while others are worthwhile simply because they improve how you live in your home
If you’ve already built up equity in your home, you may be able to tap it to fund these projects, with potential tax benefits when the funds go toward home improvements*

Have you been thinking about starting a home renovation project? Before you start knocking down walls or picking out finishes, it’s helpful to consider both the project’s cost and the value it may add to your home. Whether you’re preparing to sell or planning to stay for years to come, understanding how different renovations can affect your home’s value can help you make more informed decisions.

While few improvements recoup every dollar spent, some projects may increase your home’s value and contribute to higher equity. Home equity is the difference between your home’s market value and the amount you owe on your mortgage. Of course, not every renovation is about resale value or ROI. Some projects are simply about making your home more comfortable, functional or enjoyable.

Homeowners continue to invest heavily in their properties. According to Harvard University’s Joint Center for Housing Studies, annual spending on home improvements and repairs is expected to exceed $518 billion by the end of 2026, underscoring the ongoing demand for remodeling projects.

10 Home Improvements That Add Value

One way to evaluate a remodeling project’s potential value is to compare its cost with the amount it may add to your home’s resale value. This ROI estimate can help you compare projects and identify upgrades that may offer a higher financial return.

Keep in mind that resale value can vary based on factors such as your local housing market, your home’s condition and the quality of the work completed. Also, the projects with the highest ROI aren’t always the biggest or most expensive renovations. In many cases, smaller updates can deliver a stronger return than large-scale remodels.

Take a look at these popular home improvement projects and their average ROI values. You may be surprised at what tops the list.

Garage Door Replacement

Job Cost: $4,672
Resale Value: $12,507
Cost Recouped: 268%

Entry Door Replacement | Steel

Job Cost: $2,435
Resale Value: $5,270
Cost Recouped: 216%

Manufactured Stone Veneer

Job Cost: $11,702
Resale Value: $24,348
Cost Recouped: 208%

Siding Replacement | Fiber-Cement

Job Cost: $21,485
Resale Value: $24,420
Cost Recouped: 114%

Minor Kitchen Remodel | Midrange

Job Cost: $28,458
Resale Value: $32,141
Cost Recouped: 113%

Siding Replacement | Vinyl

Job Cost: $17,950
Resale Value: $17,313
Cost Recouped: 97%

Backup Power Generator

Job Cost: $13,534
Resale Value: $12,902
Cost Recouped: 95%

Deck Addition | Wood

Job Cost: $18,263
Resale Value: $17,323
Cost Recouped: 95%

Deck Addition | Composite

Job Cost: $25,096
Resale Value: $22,199
Cost Recouped: 89%

Grand Entrance | Fiberglass

Job Cost: $11,754
Resale Value: $9,959
Cost Recouped: 85%

Source

Pre-Renovation Checklist

Long before you start ripping up floors, you should consider the following:

Have you budgeted for the renovation costs?
Is it fixing a problem?
How long do you plan to live in the home?
Can you afford the renovation if you don’t recoup the full or significant amount of your investment?
How long will the renovation last?
Could the improvements increase your home equity?

Still unsure if your project is worth the cost? Here’s a more in-depth look at the questions above.

Don’t Guesstimate Your Renovation Budget

Even the most carefully planned renovation can come with additional expenses, so it’s important to look beyond the initial estimate. As you evaluate a project’s potential value, take time to understand the full scope of costs involved and how they fit within your budget.

A few ways to plan include:

Get estimates from multiple contractors to compare pricing, timelines and scope of work
Build a contingency fund into your budget to help cover unexpected expenses
Prioritize necessary repairs and maintenance before focusing on cosmetic upgrades
Factor in all project costs, including permits, materials, labor and potential surprises that may arise once work begins

Prioritize Long-Term Solutions

While your budget will influence the scope of a project, it’s important to determine whether you’re fixing the underlying issue or applying a temporary solution.

For example, if an upstairs leak has caused mold on the ceiling below, a quick grout repair won’t solve it. A professional inspection can help identify the source of the problem and any additional repairs that may be needed. In some cases, addressing the root cause may provide more long-term value than a short-term fix.

Match Projects to Your Timeline

If you’re planning to sell in the near future, focus on improvements that appeal to a broad range of buyers. If you expect to stay in your home for several years, personal preferences and everyday enjoyment may carry more weight.

As you weigh potential projects, think about:

When you plan to put your home on the market
Whether the improvement is likely to appeal to a wide buyer pool
Whether a smaller update could offer a greater return than a major remodel
How long you will have to enjoy the upgrade before putting your home on the market

Research Your Project’s Regional ROI

It’s important to think about the value of renovations in your region, not just on a national scale. The projects that add value in one market may not have the same impact in another. In colder climates, energy-efficiency upgrades may be especially appealing to buyers, while a swimming pool could be less desirable. In warmer regions, those preferences may be reversed.

When researching a project, pay attention to:

Regional climate and buyer preferences
Features and upgrades commonly found in nearby homes
Recent neighborhood sales and local housing trends
Whether the scope of your project aligns with surrounding homes

Neighborhood comps, or recently sold homes with similar features in your area, can help guide your decisions. You can find this information through online real estate listings, local market reports or a real estate agent. For larger projects, a local real estate agent or appraiser can also provide insight into how similar improvements have performed in your area. If your renovation involves an addition or structural changes, be sure to check local permit requirements before work begins.

Think Beyond Resale Value

Sometimes, home improvement projects are simply about making your home work better for you — and that’s OK. While not every renovation will fully recoup its cost, some improvements may increase your home’s value and contribute to higher equity.

That added equity can provide future financial flexibility. Depending on your qualifications, you may be able to access a portion of your available equity through a home equity loan or cash-out refinance. Homeowners use these financing options for a variety of purposes, including renovations, education expenses, debt consolidation and other major expenses.

Remodeling Mistakes to Avoid

When it comes to home improvements, too often homeowners rely on instinct rather than research when deciding which projects to take on. For example, converting a garage into an extra bedroom may seem like a smart way to add living space, but the loss of parking could make the home less appealing to some buyers.

Here are some remodeling mistakes to avoid:

Underestimating project costs: Make sure you understand the full scope of the project, including materials, labor, permits, inspections and any electrical or plumbing work that may be required.
Not planning for the unexpected: Renovations don’t always go according to plan. Building a contingency fund into your budget can help cover unforeseen expenses.
Choosing overly personalized upgrades: Highly customized features may suit your tastes, but could have limited appeal to future buyers.
Assuming bigger projects deliver bigger returns: More expensive renovations don’t always provide the highest return on investment.
Ignoring permits and inspection requirements: Skipping required approvals can create delays, additional costs and complications down the road.
Not researching local resale trends: Buyer preferences vary by market. Look at comparable homes and recent sales before committing to a major project.
Setting unrealistic expectations: Home renovation shows can make projects look faster, easier and less expensive than they are in reality.

Home Improvement Cost vs. Value FAQs

Which Home Renovations Add the Most Value?

The renovations that add the most value can vary by market, climate and buyer preferences. In some areas, projects such as entry door replacements, garage door upgrades, minor kitchen updates and energy-efficiency improvements may offer favorable returns.

What Is Home Improvement ROI?

Home improvement ROI, or return on investment, is an estimate of how a renovation’s cost compares with the value it may add to a home. Actual results will vary based on the project, local market conditions and other factors.

Can Home Improvements Increase Home Equity?

Home improvements may increase home equity if they contribute to a higher home value. However, not all renovations increase value, and the impact of any project will depend on factors such as the improvement itself, local market conditions, and broader housing market trends.

Make Your Home Improvement Plan

Whether you’re a first-time homeowner with a growing family or about to retire and looking to sell and downsize, it’s important to understand which home improvement projects make the most sense for you.

If you’re ready to begin your next exciting remodeling project, consider tapping into your existing home equity to fund it through a home equity loan or cash-out refinance. Connect with a Pennymac Loan Expert to explore your options.

*Consult a tax adviser for further information regarding the deductibility of interest and charges.

Home Improvement ROI Guide | Pennymac