Whether you are planning a total renovation of your house, or you simply want to spruce up a room, the first thing you'll want to think about is a remodeling budget — and of course how much value the project will add to your home. With the median price of home remodeling projects exceeding $18,000, prudent homeowners need to focus their spending on projects that improve their comfort level and provide a good return on investment (ROI). The average ROI for home renovations is only 56 percent, though some projects provide much better returns.
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At the same time, homebuyers can be fickle, and a home improvement project that may dramatically boost your home's resale value one year may provide only a marginal increase the next. To determine which home renovations will give you the best ROI in 2023, we spoke with various experts, including real estate agents, interior designers, home flippers, inspectors, remodelers, and industry analysts.
Remodeling in 2023? Here's what you can expect to pay — and how much of a return you'll get for each project.
Building a Home Addition
One of the chief complaints people have about their home is a lack of space, which is why home additions can be so beneficial. Unlike most home renovation projects, this project increases your home's square footage and may increase the number of bedrooms or bathrooms in the house, both of which can dramatically increase the value of your home.
The average cost for home additions varies greatly depending on:
- the size
- room type
- the city where the home is located
As an example, though, the average budget for a ground-level primary bedroom suite with a bathroom addition is $175,473. Upper-floor additions, however, are typically much more expensive because they require removing the roof.
Adding a new primary bedroom with an en suite bathroom can make your house particularly appealing to homebuyers, resulting in an average ROI of 53.4 percent. Of course, these types of remodeling projects are not cheap since the cost must cover the permits, foundation, roofing, framing, labor, materials, and other expenses.
While these projects require a major investment, Doug Green of Philadelphia's Signature Properties tells Hunker, "In my experience, the biggest ROI comes from increasing the property's footprint or square footage. It's expensive and quite a headache to coordinate as a homeowner, but you will be rewarded greatly in the equity it can add to your home."
Converting a Basement to Livable Space
The National Association of Realtors estimates that converting a basement to a living space can provide an 86 percent return on investment. As Martin Orefice, CEO of Rent to Own Labs, tells Hunker, "When it comes to home improvement projects with the biggest ROI, adding more square footage [as well as] bedrooms and bathrooms is key." He says that converting an unfinished basement is one of the best ways to do this, as home additions are so pricey and complicated compared to basement renovations.
While Alex Capozzolo of SD House Guys also believes basement upgrades are one of the best renovation projects in which a homeowner can invest, he does caution, "No matter the condition, a finished basement space will never equate to the same value as above-ground living space in the eyes of an appraiser." Most municipalities do not allow below-grade areas to be included in the overall square footage of a home, even if they are finished and feature an egress window. The finished basement area can still be mentioned elsewhere in the listing and can still be an attractive selling point to buyers, even if you live in an area that prohibits its inclusion in your home's total square footage.
As for costs, basement remodeling projects average around $57,500, which can include waterproofing, framing, wiring, plumbing, insulating, and flooring.
Creating a Rentable Living Area
- $140,000 – $180,000
- 15% – 35%*
*(This denotes resale value only; rental units can potentially make $15,000 and $30,000 in rental income per year.)
Tomas Satas, CEO of Windy City HomeBuyer, tells Hunker that homeowners who really want to guarantee a return on their investment need to rent a portion of their home. He says that with the current trends in the housing market, you shouldn't just finish your basement but instead "turn it into a furnished apartment and find a tenant." Alternatively, he suggests, "You can even build a small guest house in the back to rent out. Having an apartment as part of your property will return your investment and then some." With the real estate market expected to flatline throughout 2023, this could be one of the best options to increase your home's value over the next year.
The cost of accessory dwelling units (ADUs) varies dramatically based on whether they are:
- detached new structures
- attached structures
- upgraded basements
- converted garages
A detached structure or basement ADU will typically cost over $180,000 to complete, while a garage conversion is usually closer to $140,000. All in all, expect an average granny flat to cost somewhere around $166,000 but remember that the unit's size and location will also influence the cost. At their most basic, ADUs should include a living area, bedroom, kitchen, and bathroom, but many have far more luxuries.
The home's location also plays a major role in the ROI of an in-law suite. In fact, while ADUs have historically been poor investments from a resale perspective, with a dismal ROI of -15 percent, homes in large cities can sell for 35 percent more with an ADU.
However, an ADU could pay off in terms of rental income, with most units paying for themselves within three to five years as they bring in rental income between $15,000 and $30,000 per year depending on your area.
Reasonable Kitchen Remodels
- $10,000 – $70,000
Kitchen remodels remain a popular home improvement project. You can expect these home upgrades to provide an ROI of 67 percent, but aside from the financial aspect, these renovations offer homeowners a sense of satisfaction unrivaled by other home renovations. As Shaun Martin of Denver Home Buyer explains, "Not only does a well-designed kitchen add value to your home but it also makes cooking and entertaining more enjoyable."
When it comes to maximizing ROI, Andre Kazmierski of Improovy Painters in Chicago tells Hunker that homeowners should "...focus on remodels in your kitchen or bathroom that increase the functionality or convenience of the space. Remodels that spend too much up front on luxury appliances or very taste-specific design will have a lower ROI." In other words, if you have outdated wood cabinets that are still in good shape, don't tear them out; instead, try painting or refacing them to create a modern look with minimal costs.
Kitchen renovation projects can vary dramatically in terms of price. On the low end, a $10,000 minor kitchen remodel may involve upgrading the sink, adding a new backsplash, refacing the cabinets, and putting a fresh coat of paint on the walls. On the other hand, a major kitchen remodel has an average price of $70,000, which might include semicustom cabinets, new flooring, laminate countertops, upgraded lighting fixtures, and new appliances. Luxury renovations with high-end appliances and materials can easily cost over $130,000. The average cost for a middle-of-the-road kitchen renovation is $45,000.
Overall, you can expect a higher return on investment for a significant remodeling project, but for the best return, stick with midrange materials and appliances over luxury products that inflate the budget without improving functionality. Because budgets can vary so much on these projects, Jon Sanborn of Brotherly Love Real Estate in Philadelphia tells Hunker that homeowners should set aside 10 percent of the home's overall value. "So, if your home is valued at $200,000, you might be spending around $20,000 on the upgrade," he says.
Upgrading the Bathroom
Like kitchen remodeling, a bathroom renovation is a classic upgrade that continues to be popular year after year. A bathroom remodel will typically cost less than redoing your kitchen and take less time as well. "Focus on functionality and storage, as these are the two most important factors that buyers look for," Martin tells Hunker. Also, consider adding custom tiling when possible because these are the types of details potential buyers love to see in bathrooms, translating to a high ROI.
Overall, an average bathroom renovation has an ROI of 71 percent and costs $35,000.
Installing or Refinishing Hardwood Flooring
- $1,800 – $4,500
- 118 – 147%
Hardwood floors are always a good investment, but the National Association of Realtors found that 10 percent of real estate agents reported buyers showing an increased demand for them during the pandemic. In financial terms, the numbers speak for themselves: Installing new hardwood floors provides a 118 percent return on investment, and refinishing old hardwood floors offers one of the best return rates of any home improvement project — an impressive 147 percent. Installing hardwood floors costs an average of $6 to $12 per square foot, with an average price tag of $4,568, and refinishing hardwood costs between $3 and $8 per square foot, with an average price tag of $1,814.
Installing New Windows
- Around $20,000 for 10 windows
Though it's not as exciting as a kitchen or bathroom remodel, window replacement is a really important and strategic home improvement project. New vinyl windows have an impressive 67.5 percent ROI, but what's really helpful is that by improving your home's energy efficiency, they can also help you save on your utility bills. As Scott Berens of Balsamo Homes tells Hunker, "Energy-efficient windows can help reduce your heating and cooling costs by up to 30 percent, so they're definitely worth considering if you're looking to save money on your energy bills." Energy Star windows are estimated to be able to save homeowners anywhere from $27 to $583 per year on their energy costs.
When shopping for good replacement windows, look for windows that are optimized for your climate and the window orientation. For example, windows can have special coatings that help retain heat in rooms that receive limited sunlight, or they can be designed to block heat from entering warmer spaces.
Replacing 10 windows in your home can cost an average of $20,482 if you choose thermal-insulated windows with special coatings, which help improve the windows' performance and maximize energy savings.
The Right Renovation for You
There is no single right renovation choice for everyone, particularly because few people tackle these projects purely for profit. If you're planning to sell your house and want to boost its value quickly, it's hard to overlook the impressive ROI on new or refinished hardwood flooring. However, hen you're looking for a long-term investment with a property you plan to hold on to, adding an in-law suite may be a good idea depending on the local real estate and rental markets.
Remember that ROI for a project doesn't just vary from year to year but also from location to location. When you're considering what renovation projects will provide you with the best return, try to find more localized information by speaking with real estate agents, interior designers, and renovation companies in your area. Let them know whether you plan to sell quickly or if you're looking for something that will continue to maintain value for years to come, as trendy projects may not be worth as much in the future.
Expected Returns on Top Renovation Projects in 2023
Projected Increase in Home Value
In-Law Suite Addition*
Hardwood Floor Installation
Hardwood Floor Refinishing
Replacing Old Windows*
- In-law suites and energy-efficient windows provide additional returns in terms of rental income and energy savings, respectively.